Hidden Shrine

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Hidden shrines work by increaseing all equiped items (that are not undestructible) durability by 10%. It then pick one of the equiped item at random and lower its durability by 20% (for an end effect of -10%). SO if you only have one item, it will for sure be picked for reduction. Thus the best strategy is to equip as many other items as possible together with your Thinking Cap. I usually go and buy some junk items for the other slots unless I have some other items I want to attempt to raise the durability on as well.

If the item picked for losing durability will have its durability go below 1%, it will not be destroyed, it will simply set the durability to 1% anyway.

And no, it won't affect any item in your inventory.

You may want to read up about the bug with uninitilized random seeds affecting shrines as well since it affects what slot get picked for reduction. Either search on the forums or look for my Guide which should also explain it, although perhaps not in such a technical way. If I recall correctly, it basically makes the shield slot the most probable to get the reduction.
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Thanks for the information, that was exacly what i wanted to know :)