RORY: Hey, how’s Sookie doing in there?
LORELAI: Ah, well, she’s paper bagging it.
LORELAI: You know… [Lorelai breathes into a pretend paper bag]
Breathing into a paper bag is a well known treatment for panic attacks, as (when done correctly) it helps to regulate breathing and prevent hyperventilation. Please note, it can only help with breathing problems brought on by panic. Never use it if you have asthma or lung problems.