Sandbagging on a Go server (or in an over-the-board tournament) is deliberately setting your rank lower than it should be.
Various techniques can be used for sandbagging. On go servers, where rated games automatically count towards a player's rank, the sandbagger must either play predominantly unrated (free) games, or deliberately lose a rated game occasionally, since otherwise the ranking algorithm would, over time, change the player's rank in the direction of his or her true strength, i.e., upwards. Another technique is the use of multiple accounts, to reduce the number of rated games played per account and thus the pace at which that account's rank increases.
The reasons for engaging in sandbagging can be diverse, but are, presumably, centered around the pleasurable feeling of winning a higher percentage of games. There is, thus, a degree of tension between this purpose and the techniques that must be applied to sandbag over a prolonged period of time.