A type of stylish cloth, such as a bandanna or towel, but in extreme cases could include shirts or generally semi-/non-raw materials or items. It can be displayed on a face, in a back pocket or other creative ways. It is used to represent the level of swag one is working with.
He got mad style with that swag rag.
Hand me my swag rag.
Get your bummy ass, filthy t-shirt swag rag wearing self outta here!