Tea, like any organic product, varies wildly in quality across several parameters. One parameter, of course, is the species / breed of the tea plant; a second is the tending / harvesting of the tea; a third is the preparation of the harvested leaves for sale; and a fourth is the preparation of the purchased tea product for consumption.
[Analogously, we might speak of the breed of cow (Angus, Kobe, . . .); the treatment of the cow (its diet, exercise, . . .), the cut of beef (ribeye, filet mignon, . . .); the treatment of the meat (smoked, seasoned, marinated, . . .); and the manner in which the steak is prepared (grilled, BBQ'd, broiled, . . .).]
The tea bag dramatically reduces complications involved in the preparation of tea products for consumption. The would be tea drinker no longer has to either (i) measure out the appropriate amount of tea, or (ii) filter the tea leaves from the water once steeping has finished; both tasks are handily dealt with by the convenient bag.
Nevertheless, the bag brings with it a cost. This cost manifests itself in the restriction of values which can be held by key parameters relevant to overall tea quality.
First, the bag restricts the space in which tea leaves can expand. Yet, expansion of tea leaves is necessary for proper steeping. Furthermore, size of tea leaves is positively correlated with tea quality. Consider, for example, a fine Taiwanese Oolong which comes dry in pellets such as this one:
When properly steeped, however, the leaf expands to reveal its size and shape. Here is the exact same tea leaf after proper steeping, approximately 10x wider and 25x longer than before:
So, high quality leaves cannot steep properly in small bags. Furthermore, the convenience of the tea bag breeds a carelessness in preparation, so consumers often oversteep, or steep a tea at an inappropriate temperature (subtle green teas, for example, lose all their flavor if steeped in boiling water and become bitter if steeped for too long).
De facto, however, it is not just extremely large leaves which are excluded from tea bags. The usual practice is to fill them with tea dust, or very tiny crumbs of tea, the floor sweepings from the processing of quality tea, excluding almost all tea but that of the lowest quality. The economic feasibility of tea bags depends upon their use of such extremely poor-quality (and thus cheap) tea.
The consequence: for the sake of convenience, the lion's share of the tea drinking population drinks substandard tea. First corollary: loose leaf tea is almost impossible to find in any standard grocery stores or coffee shops. Second corollary: to fuel the yuppie drive for more expensive goods, "gourmet" tea bags have begun to appear. Yet, such "gourmet" teas are of far lower quality, and now, even more expensive (per cup) than most loose leaf teas.