The pouch allows for extra item storage (3 slots), where you can store any item (except for the pouch).
The pouch is the based for the Backpack (that gives 9 extra slots), and Rucksack (giving 27 extra slots).
The pouch can be used in two ways.
Firstly the storage in the pouch can be accessed by right-clicking while holding the pouch.
Secondly the pouch can be used in the Camping Inventory. When a pouch is placed in the backpack slot of the Camping Inventory, the pouch's inventory will be accessible as extra inventory space thus expanding your basic inventory. This allows for very easy and quick item management.
To craft the pouch, a string, and five pieces of leather are needed.