The word shag comes from how tobacco visually looks. The strands of tobacco were thought to look like an English thick pile fabric giving it a shaggy appearance. It's believed the word shag comes from the old English word Sceacga, derived from the Norse word Skegg which means beard. Originally Shag tobacco referred to any cut or ribboned tobacco that was imported from Virginia; however, this meaning has now evolved to apply to pipe tobacco here in the UK.
Shag tobacco tends to be a blend of fine and rough cut tobacco that is mainly associated in the UK with pipe smoking. The tax on Shag tobacco is much lower than hand-rolling tobacco in the UK. This means that smoking a pipe can be a lot cheaper than smoking hand rolling tobacco or traditional cigarettes.