As it's name suggests, a Happy Bag is essentially a bag of happy. Think of the "happy" in the bag like the massive ammounts of Seratonin(the hormone that makes you happy) that is stored in your brain, and forced to be released when ecstacy is used. A popped happy bag is much like using ecstacy in this sense, as all the happy is forced to exit the bag. However a ruptured happy bag is much more deadly than ecstacy.
A happy bag of normal size, when popped, unleashes enough energy to power the country of Finland for 32 minutes. These extremely powerful blasts and shockwaves of happy explode in a radius of 60 miles. This happy is very infectious.
I heard that Waldo is really a happy bag, and he's hiding because everyone wants to pop him.