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In my bag, it says how many items I have out of 350. But currently it says

  ITEMS
351 / 350

which is a bit odd, and seemed to suggest that 350 is not actually the limit. So I looked it up and Niantic's official support page says

Your Bag can hold an inventory of 500 items. You will not be able to gather new items from PokéStops when your Bag is over the 500 item limit.

So what is it? 350? 500? 350 plus some buffer amount?

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If you have 349/350 items in your bag and visit a Pokestop, it will allow you to loot it, and allocate you an additional slot for each item that puts you above 350.

However, if you are already at or above 350/350, you will not be allowed to loot the Pokestop.

I am not 100% certain on this last part, but I imagine if you purchased items through the shop (with coins), it would similarly allocate you additional bag slots if necessary.

Edit: According to other users the effect is the same when leveling up. You will be allocated space above 350 to account for items received upon a level up.

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    if you lvl up you get those items awarded as well regardless of your bag space.
    – dly
    Jul 25 '16 at 20:45
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    When you attempt to purchase items from the shop and you don't have enough space in your bag to hold them all, it won't allow you to purchase them. I was attempting to purchase 100 pokeballs using my coins earned from holding gyms, and it gave me a message saying not enough space until I made room in my bag for all 100.
    – RianBattle
    Jul 26 '16 at 12:25
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You can receive items from pokestops as long as you are below the limit however you will always get all the items from the pokestop. Ex. If you're currently at 349/350 you will get items but if you receive 5 items then you will have 354/350 and cannot receive any more items from pokestops.

You will always receive items from leveling but it works the same way as pokestops however if you are already above the limit you will just be even further above the limit.

You can increase your item limit up to 1000 items from the shop.

Source

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