Sandbags are, as their name implies, canvas sacks filled with sand. They are used to quickly erect walls that may not be very structurally sound, but can withstand impact of low-caliber ordnance.
Or, they could simply be refuse from an archeological dig site.
Either way, in games, sand bags are almost always a material used to build decoration in the game world, and are very rarely interactive. Sand bags may be considered a "cheap" material for building fences and fortifications in real-time strategy games. Sandbags are a striking example of technological progression in gaming graphics - while earlier games represented an entire sandbag wall as a single, square polygon with a photograph or drawing of sandbags stretched on it, many modern high-polygon games model sandbag walls exhaustively to minute detail - excellent examples seen in Unreal Tournament 3 (and other Unreal Engine 3.0) games and Crysis.