It's an adjective for something that's bad. It could be easily subbed in a sentence for bad or shit, but it's a much cooler way of saying it.
Andy: " Yo Josh, how did your exams go?
Josh: " They went really bad, not gonna lie"
Andy: " Shit bro, that's pretty penis in the sack"
Nic: "weather is a bit penis in the sack today"