The first knitting is the bottom of the bag and you are picking up stitches so you can knit in the round up the sides, front and back.
Place a marker before you start so it's easy to count the stitches picked up. YOu can also place markers after each segment to make counting easier.
Now... Using the needle with the working yarn and all the stitches you just stick the needle in and wrap the yarn and pull it through. That creates a new stitch. You just keep going. It may be tight, but once you get them all one you'll understand how it wall works.
It's a really awkward thing to do and I'm not sure I explained it very well. Check this video on KH to help more. It's down toward the bottom of the page.