Backpacks can be used to hold items.
In order to craft a Large Backpack you first need 8 bound leather. (Raw materials 16 Leather 56 String)
Then cook the bound leather in a furnace.
Then Craft the Large Backpack
You can add any dye in the center of the crafting recipie to make the Backpack that color.
You can also name you backpack by Shift+Click.