A Soul Bag is a bag used by Warlocks to hold more Soul Shards than they would normally be able to carry in conventional containers. The soul bag consumes a regular container slot, however, so it reduces the number of available slots for non-Soul Shard items. The value of the trade-off is up to the individual Warlock.
Soul Shards harvested by the Warlock are automatically stored in an equipped Soul Bag when acquired, making tedious Soul Shard housekeeping a thing of the past. Helpfully, soul bags also display the number of soul shards stored within them on the bag icon on the container tool bar.