Bagged or Loose Leaf Tea
The differences in quality between teas is usually down to the manufacturer and the product line. As far as I can tell, there is no discernible difference between Twining's English Breakfast tea (for instance) in bags or loose leaf. They are the same leaves, presented differently.

However, and this is the important part, there is a difference in how they infuse. Because of the limitations of the tea bag, and the flow of the water through the leaves, a loose-leaf tea is usually infused more quickly, and possibly better. That is, you get more essence of tea from the leaves into the water.
There are different bag designs (pyramid bags for example) which try to bridge some of this gap.

The advantage of the tea bags is that they are easier to work with, as you don't need to strain the leaves out of the water, you can just pick the bag up with your spoon.

There is a lovely essay by George Orwell about making "proper" tea. Some of it is a matter of taste, but his point about the infusion is spot on, in my opinion.