When something becomes bunched it means it gathers toward one area. For example, if I grab a shirt in one hand and have the whole width bunched in my hand (the top and bottom of the shirt simply hang). Or, closer to the phrase you mentioned, if your boxers (underwear that also covers the top part of your legs) are in a bunch, it's uncomfortable because the part that covers your leg is bunched upward. Used as a verb, at least here in America, we usually use the phrasal verb "bunch up", aside from set phrases like the one you mentioned.