Good question! You don't have to do anything, the sack is always active. But it doesn't work on fishing rod or crown which are tools, nor on armor, weapons, or scrolls. The sack lets you pick up all the "action" items you find. Action items are the far left inventory item and include food and other items you activate like the shovel, or musical instruments. You can use food for taming creatures and keys from anywhere in the sack, but items you need to activate (eg. shovel, food for yourself) need to be at the top of the sack. This can lead to some rummaging around! Note that the giant hero has a catch-all ability "gigantic" which includes an implicit sack-like capability. A sack that is dropped will retain all the items inside. Gnomes (who can carry multiple tools) will only fill up a single sack.
I will rework the sack's description to try to explain this better. Thanks for playing! How are you enjoying the game so far?