It is a thick cream made by indirectly heating full-cream cow's milk using steam or a water bath and then leaving it in shallow pans to cool slowly. During this time, the cream content rises to the surface and forms "clots" or "clouts."
Role in episode
After receiving advice from the Plan Your Own Party Kit, SpongeBob cooks a bowl of clotted cream as a food for the party guests, reading the instructions from a cookbook called Fun with Cream. Upon finishing the cooking, SpongeBob sucks some clotted cream off his finger and praises it for its "out-of-this-world" flavor.