Sackboy is Captain Viridian.
After preventing the dimension of that game from collapsing, he went off in search of other places to help. He ended up in Craftworld and looked at these pictures of highly successful people, then suddenly leaped into action after meeting The King and hearing of an adventure. Sackboy is a Time Lord.
He can travel anywhere as long as the level isn't locked, and in certain levels he even gets time-bending powers. Create Mode also gives him the ability to pause, rewind, and fast forward time. The Pod is his TARDIS, and his companions are The Narrator, Toggle, Oddsock, and Swoop. In the third game, there was originally intended to be a fifth character.
He was some kind of sea serpent or other aquatic creature that would be able to swim faster than anyone and have infinite breath underwater. After implementing OddSock and his world, Manglewood, and implementing Toggle and his world, the Ziggurat, they began work on Bunkum Lagoon, but figured out that Fishy would be too hard to animate, implement, etc. So they cut him out before they designed his level and redesigned the world for Swoop instead, hence why there isn't much water in the Lagoon. They also put the character's remains and concept on Captain Pud's costume as a Development Gag. The Narrator is actually The Doctor
He's eccentric enough, and perhaps this incarnation is the craziest yet. He is aware of the troubles in LittleBigPlanet/Craftworld/Bunkum but seeing as the worlds are specifically catered to those that are 3 inches tall. He recruited Sackboy to go on the adventures in his place, while he gives advice on the sidelines. The pod is actually a mini-computer within The TARDIS, that The Doctor rigged a life-sized PS3/4 controller to.- He'd make an especially Mind Screwy Doctor, considering he was the Minister of Chance, wrote a script for the show, and married River Song!
Sack People are Personas.
In the intro to LittleBigPlanet 3, Stephen Fry reveals that your Sack Person is the manifestation of your true self. Say, that sounds a lot like a Persona, doesn't it? LittleBigPlanet 3 takes place ten years in the future
Which is why Larry Da Vinci, sounds much older, and is far more senile and forgetful since the last game. The PSP game was supposed to be a port
Media Molecule would have developed the game themselves if it was supposed to be a new entry, instead of outsourcing it to Guerrilla Cambridge. They were going to just port LBP1's story, but so much stuff was removed, they had to rebuild it from scratch.