Bags are personal storage Containers you can wear. There are curently two bags available, you will always spawn with the Small Bag but a larger Backpack can be found if you're lucky. Additionally, you can create a Parachute Bag by cutting out the parachute with a Knife.
If you are wearing a bag, it can be accessed from your Inventory screen by clicking it's Item Tile to the right. You can click it again to close it. This works the same while looking in other containers such as trunks and boxes, clicking the bag will take you to the bag contents, and clicking again will take you back to the container you were initially looking in.
To wear a bag that you are holding you can press Unequip Key (Default Y), and to take it off you can press Drop Key (Default N) if you aren't holding anything and it will place the bag item in your hands.
If you go behind a player and press Interact Key (Default F/Enter) you will access their bag to view their items, if they move too far away the menu will close.