I don't have the pattern, so I don't know if that's the way it's supposed to be done. I've done a felted bag where it was purled on the outside, so maybe it's supposed to be that way. But.. if you're confused, it's probably not. I'm guessing you're knitting, not purling?
In that case, I think you're knitting on the inside of the bag. When you hold your work, the needles should be on the side nearest to you, with the bag facing away. That way you're knitting on the outside.