The bag can hold up to 100 uncut gems (overall, not 100 of each type) by using them with the bag, helping you save inventory space. It can hold gems of the following types:
A particularly useful application is when Mining gem rocks in Shilo Village, but please keep in mind that it will not hold Opal, Jade or Red topaz, which are the most common gems from the gem rocks.
It is also useful when training on monsters that drop a lot of gems, as you might otherwise have discarded the gems.
Gems can also be stored in the bag to save bank space (if all uncut gems are stored in the bag instead of directly in the bank, you'd save 3 bank slots).