Loot

Sometimes when you kill something a bag will "pop out" of the monster. To get it, just walk over to it and grab it with a free hand using the Grip button. Once you pick it up, you can see what's inside of it. If you want to collect it, just put the bag behind your head (like you're putting it into a backpack).

Note that if you don't have a free hand (such as the Ranger) you'll have to sheathe one of your weapons to pick up loot.

Rarity
Items have different levels of rarity, such as Uncommon, Rare, Epic, Legendary. The rarity of the loot is tied to the difficulty of the monster. Rare drops will come from mobs level 10 and above. Epic and Legendary drops only come from top level mobs and dungeons.