It is a red trash chute/shredder and has a yellow sign that reads "Trash" in red text.
Role in episode
As punishment for violating the customer policy, Patrick is forced to work at the Krusty Krab. Due to his stupidity, Mr. Krabs gives him a simple task to his advantage: throwing trash bags down the trash chute. Patrick shoves as many bags down it as he can, but they do not go down. SpongeBob drops by to help him, informing him that he did not have the compactor switch turned on.
The machine then turns on and functions properly. However, Patrick then sees SpongeBob carrying a bag of Mr. Krabs' money and naïvely shoves said bag down the compactor as well, despite SpongeBob warning him that it is not trash. This causes the machine to malfunction and explode, destroying the Krusty Krab in the process.