The backpack is also know as the inventory or bag. It is where a player keeps his or her items. The backpack has 2 separate sections: one for regular loot or crafting materials and another for quest items.
The backpack starts with 2 pouches, each with 16 slots. At Rank 10 and every 10 levels thereafter, you are awarded another pouch. So by level 40 you should have 6 pouches. This image is an example for a level 15 character:
There are three tabs for your backpack: Icons, List, and Quest.
The Icons view displays item in a traditional icon-and-cell-based grid where an item occupies the square and stacks of items are represented by a number in the corner of the icon. Each pouch can be clicked on to open or close it. By clicking on the arrow type tab on the right side of each pouch slot, you can set what items you want to go into that pouch. Items will default to that pouch when picked up. If the pouch is full items will go into the next available pouch.
The List view shows each item in a sortable list that offers more detail at a glance. By clicking the filtering options at the top of the list view you're able to better sort the list and find what you're looking for quicker.
The Quest view displays only special quest items. To finish many quests, you must open this tab and right click on an item (sometimes at a particular locale or close to a specific npc/mob).
The backpack also features and overflow feature, this allows you to hold extra items that have been generated by crafting or won by looting even after your backpack is full. While there are items in the overflow inventory you cannot roll on loot or do many other things. All items in the overflow inventory are destroyed on logout.
Interesting quote from Gamespot:
"[...] Mythic has also modified the game's inventory system to make your character's backpack sortable by item types (so that you can browse only the potions you're carrying, or only the weapons). Perhaps more importantly (and more wisely), the studio has also decided to keep all quest-related items out of your regular backpack so that you'll never find yourself in the ridiculous position of being unable to take on an interesting new quest because you had only two slots left in your bag."