A more common expression here is "fleabag hotel", which is probably a nicer way to say the same thing.

That's hilarious, but yeah, everyone above is correct. It's just another way to say that a hotel is dirty, has really bad service, etc. If you are planning a visit, definitely stay away from hotels with reviews saying "shitbag hotel," haha!

There are ways of saying a hotel is bad, and although this appears to be an attempt at that, it fails. We native English speakers tend to stick to "crap".

I would guess it means that the hotel is very bad,at a very low level.