I will be flying from Khon Kaen to Chiang Mai in December via Don Mueang.

At DM do I need to collect bags & check-in again for CM flight or are bags transferred to CM flight by airline?

i would think Thai Air would transfer them, i have never taken that particular flight but i fly to and from Khon Kaen/ Don Muang route a couple dozen times a year. When you get to the KKC airport as the lady at the check in desk, i would be willing to be they would check them all the way through, if you get a boarding card for your CM flight in KKC then its a done deal.