It is a playset version of the Krusty Krab.
Role in episode
After Mr. Krabs makes SpongeBob take a vacation from work, SpongeBob is sent home. He decides to play with the Krusty Krab playset to remind himself of his job at the restaurant. However, this only worsens his stress, as he makes toy Mr. Krabs reenact the scene earlier where the real Mr. Krabs sends him away from the Krusty Krab. After that the toy SpongeBob walks home and plays with the smaller playset in the same way until Gary interrupts him.