A Magic Bag is an treasure item that can be found.
When picked up it can be "used" in your inventory to give you an additional 10 spaces of carrying capacity.
In multiplayer, there are two different kinds of magic bags: Small Magic Bag and
Medium Magic Bag.
You can use Small Magic Bags to add 10 spaces of carrying capacity to your inventory three times, and from then on Medium Magic Bags to add another 10 spaces three times.
One can be found in a chest behind a door that is behind a secret door in the Library.
As a reward for the Liberation Day quest in the Prison (in which the player must free 8 goblins), the player receives an "unknown key", which unlocks a chest found through a door in a room between the two rooms with prison cells. This chest contains 3 magic bags(?) (4 in medium difficulty).
A Small Magic Bag is found in the third loot room in Sherwood Gravejard in Multiplayer.
Medium Magic Bags can be found in every Multiplayer map from then on. [UNCONFIRMED]