Like many of the 16-bit RPGs it's patterned after, the third Penny Arcade game utilizes a turn-based combat model. Your team and the baddies you encounter while walking around are transported to a battle stage in which you'll swap opportunities to attack, cast spells, and use items. Magic points are accrued at a rate of one per turn, meaning you'll need to wait a few go-rounds to unleash bigger spells, though we did see one spell with a first-turn bonus effect.
Depending on where you roam, you may be affixed to a navigational grid or given some flexibility on where you walk. Initially, in the demo, we traversed from point to point on a fixed map, triggering some narrative bits along the way. But shortly thereafter, we were able to walk freely around a boardwalk setting, walking up to visible enemies to trigger fights.