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I know that there's an explanation for the baggage rule on the wiki. I've read it, but I still didn't quite get it. How exactly does this rule work? What's the purpose of it?

Just wait for it's rewrite in N3, it that much of a mess. For now other then the +20pts for retreat and what in Paradiso for the campaign and cubevac (I think thats the one) I would avoid the rest of the text. Mainly becouse the VP part of baggage was before ITS and the current VP system.

The basics are pretty simple: Except when buying the model for your list, always consider the model to be worth +20pts more.

This increases your retreat threshold (as you are now talking about 60% of a 320 pt army, not 60% of a 300 pt army - however, it also counts as +20 pts more towards being in retreat if it gets KOed, so try and avoid that), increases your ability to hold table sectors (as the model is worth +20 pts more if it's in that sector) and the like.

Additionally, it also gets bonuses if you use the cas-evac rule (that is, carrying unconscious models) from Paradiso. Most models can only use Short Movement skills while Casevacing, and can't carry anything with a higher PH than themselves.
Baggage models ignore the restriction on which skills they can use while casevacing, and can move anything of any PH. Therefore, a Kameel remote can tow a Maghariba Guard TAG around the table - a feat even Achilles or Ajax couldn't replicate.

Furthermore, in some scenarios it provides the capacity to carry more objectives (or, indeed, in one Paradiso scenario, the ONLY capacity to carry the objective); and it provides bonuses to Cubevac rolls in a campaign.

Even funnier, an Ikadron can slap the Avatar over his shoulder and merrily sprint around the block a few times. Not something you generally do outside of Paradiso, but the idea is pretty funny

Oh, there's better than that. I'd point out that Chaksa, being LI rather than REMs, can use Cautious Move.

Although the Gorgos drops to PH11 after it's lost its symbiont and can therefore be moved by any Tohaa unit except the Delegate, the fact that Baggage removes all skill restrictions on Casevac makes Chaska the only unit in the game that can sneak while carrying a TAG...

Okay, you win

So, basically what Baggage does is it lets you stay in the game a bit longer before your guys get routed?

Except if your Baggage gets destroyed, then it's the other way around