Loot Bags are the kids-friendly version of bloody corpses in Creativerse.
Such a bag will be dropped by any creature that a player character kills. There will always be at least one piece of stuff (mainly animal materials, sometimes blocks, very rarely liquids like Molasses) in any Loot Bag, more often 2-4 "items".
However, Excavators of all kinds will also save half of the blocks (and/or objects) that they remove from an area of 7x7x7 blocks in Loot Bags since R22 on September 16th 2015.
Most Creatures that have been killed by players will always drop one or more typical animal material like Leather from Pigsies (except for corrupted creatures that will all drop at least 1 unit of Corruption Dust), and additionally to that often Bones, Sinews and/or Globs of Goo.
Since R41 in spring 2017, Loot Bags are now affected by gravity and will fall downwards until they are stopped; even rolling down steps or slopes and sinking to the ground of any kind of liquid, including liquid Lava. Luckily, Loot Bags are undestroyable, but can still be a pain to collect.
If all players leave the area, then unlooted or half-looted Loot Bags that are left alone will quickly vanish together with everything that they (still) contain. The content of lost Loot Bags cannot be retrieved afterwards (different from Death Statues/urns).
When player-characters dismiss their Pets, they will also drop Loot Bags and vanish. Loot Bags of Pets will only contain animal-typical materials, but no Pet-specific materials like Pigsy Droppings or (Chizzard or Blizzard Chizzard) Eggs.
As other creatures nearby will flee upon witnessing dismissings and the Pets concerned will not ever show up again, this means dismissing is very obviously just another way of killing creatures; despite Pets being "immortal" and indestructible otherwise.
If other players are allowed to feed and harvest from Pets by setting the Pets to other permission ranks than "Just me", these players can also (theoretically) dismiss and such "kill" these Pets. Also world owners can (theoretically) always dismiss Pets of all players on their gameworld.
Loot Bags will not be dropped by night creatures that burn to death in blue flames in sunlight, except if player-characters manage to hit them often enough before these creatures are finally consumed completely by flames.
Loot Bags will also not be dropped by creatures that are killed by corruption, fire or drowning (yes, wild Creatures can still drown in any kind of liquid if they get trapped there, and liquid Lava will set them on fire except for Hot Feet).
Upon looting a Loot Bag completely, players will receive the content, but no bag additionally to that. This is just the same principle as with the randomly spawning Treasure Chests - these will also not provide players with any kind of chest nor container, but just with their content.
Until 2016, Loot Bags were able to hover in the air just where a Creature had been killed or an Excavator had "dropped" its saved content.