Stacks in a loot bag are not limited in size, and the bag can hold as many stacks as needed.
Only the winning entity will see the loot bag and only it can remove items from the loot bag. Items can also be placed inside, to remove less value items and make room for more valuable ones.
Once the winning army is moved, the loot bag is destroyed and all items inside are lost. If the battle report window is closed for some reason, it can still be accessed from the notifications button on the top right side of the screen.