It is an area where fish hooks are located. The fish hooks only come to Bikini Bottom at different times of the year. Some of them have cubed cheese attached to them. Sea creatures like SpongeBob or Patrick can choose to ride some of the hooks and jump off from a hook at a good moment.
Role in episode
SpongeBob takes a break from work for Patrick to show what is supposedly a carnival, only for it to be Fish Hooks Park. SpongeBob is concerned for Patrick's well-being after seeing him eat numerous cubes of cheese off of the hooks. He is then reeled in by a fisherman, but then jumps off, enjoying the amusement of riding on the hooks. SpongeBob assumes from this that the hooks are harmless as long as they are jumped off from, so he joins Patrick in playing on them at Fish Hooks Park, until Mr. Krabs comes to give them a warning.