A beanbag is small cloth bag filled with beans or other small objects (plastic pellets or rice are common), for the most part used in children's games. Bean bags are easier for smaller children to catch and grasp than a ball, and have enough mass to be thrown with effective results (knocking stuff down!), but at the same time, are soft enough that they don't cause much damage if they hit someone.
Another advantage to beanbags is that children can make them themselves (with adult supervision). Get two square pieces of cloth (or one rectangular one, folded over), sew up three (two) edges to make a bag with an open top, fill with dried beans, and sew up the remaining side. If your kid is old enough to safely use a needle, this is a good way to keep them busy for an hour or so. (Or you might teach them to use a sewing machine). Otherwise you'll have to sew them up yourself, but if you've let the child choose the material and filling, the claim that they made it themselves will remain credible.
You can also make beanbags in fun shapes -- circles, triangles, stars, animals, you name it. Beanie Babies were a take-off on this idea.
Sometimes beanbag is used to as shorthand for Beanbag chairs -- these are really big bags (made of leather or something meant to look like leather, in most cases) filled with small plastic or foam pieces.
Sometimes written as bean bag.