It's actually 2 expressions combined, duche bag (- historically known as an instrument of cleanliness bestowed upon a dirty piece of female genitalia) and fag(Short form for faggot aka homo).

This expression is used when a duche male is sleeping with a lot of other men. He's like a male - gigolo, for men!

a straight guy that has sex with other guys for a bag of meth in return.

A fag in a bag is what you call someone when they're being damn annoying... AND IT RHYMES!!!!

an extremely joyous homosexual with appropriate accessories

a dude carrying around his girlfriend's purse for her

a person that carries his/her frisbie discs in a bag made specifically for the purpose

a term given to a particular type of tea-bagging, specifically one done while wearing a fox and/or other animal themed hat that when worn gives the wearer the appearance of having animal ears