Nested NFTs are NFTs that can own other NFTs. This makes it possible to build NFT collectibles that can be equipped and crafted. It would be like an NFTs format that works as if they were LEGO bricks.
Imagine a collection of NFTs whose image is made up of multiple elements that can be activated, deactivated, burned, sold and transferred like any non-fungible token.
Let's think of a simple example, imagine an NFT collection of Mr. Potato Head. Users could have a basic version of the potato body and purchase some unique add-ons like dragon ears, top hat or a mouth that smiles. The designer can create unique or limited edition items and accessories for their characters. Collectors will be able to purchase new add-ons to make their Mr. Potato Head rarer and more desirable. This way they have a unique digital object that can be transferred either as a complete set or for its separate parts.
This logic can be applied to any type of NFT collection, apart from PFPs (Profile Picture Projects). For example, imagine a digital artist who creates spectacular surreal landscapes where all the elements that appear in the composition are collectible objects. This allows owners to be able to play with the final composition and make it even more rare and awesome.
Also, some of these NFTs nested in your main NFT could be special and grant privileges, rewards or exclusivity in any service or activity related to the collection. Imagine that you bought a digital crown for your NFT character. This crown gives you visual status, but it also gives you exclusive privileges or real-world rewards, concert tickets, discounts, airdrops, or a high-quality physical print of your NFT.