Someone who you fuck although they're ugly. The metaphor is sticking a bag over their head so you don't have to look at them while you bang them. You could be fucking them because you're desperate. You might be fucking them because you like them so much (for their brains, personality etc) that you don't notice how ugly they are. Compare and contrast with 'gag job'.
Jane's a great bag job. I enjoy our pillow talk so much that I forget what a lame fuck she is.