Learn French: Elle cache quoi dans le sac ? - What is she hiding in the bag?

In spoken and informal French, it is very common to keep the normal statement word order and put the question word exactly where the answer would go. Instead of asking "What is she hiding?", you literally ask "She is hiding what?" (Elle cache quoi ?).

Why do we use quoi for "what" here instead of que?

When "what" is placed after a verb in this kind of informal question, it changes from que to quoi. You generally only use que (or qu'est-ce que) if you are placing the question word at the very beginning of the sentence.

Does cache mean "is hiding" or "hides"?

It means both! French does not have a separate "is doing" tense like English does. The present tense verb cache translates to either "hides" or "is hiding" depending on what makes the most sense in the context.

Is sac just a general bag, or does it mean a purse or backpack?

sac is the general word for "bag." If you want to be more specific, you can add words after it, like un sac à dos (a backpack) or un sac à main (a handbag or purse). By itself, it is just a standard bag.