It represents a human being. It is tall, has hair, and also has a shell covering his private areas.
Role in episode
SpongeBob makes the statue by tapping a hammer and chisel once on a block of marble. Squidward initially thinks it is beautiful, but in order to maintain his self-perception of being the better artist, he criticizes it and puts his nose shape on it to preserve this perception.
Later, Monty P. Moneybags views the statue and likes it, apart from the nose Squidward added. He tells Squidward that with it the artist can have fame, fortune, and anything they want, and Squidward says he made it.
As they move it out of the room, the head falls off and turns into dust.