It is a large gray and dark blue machine with many wires, gears, pipes, and other things sticking out of it. Concept-wise, it is a machine that doctors use in Bikini Bottom if a patient's butt is severely injured.
Role in episode
Tom once had to use one. SpongeBob fears the Iron Butt greatly. Seeing it results in him wanting to stay indoors for his entire life so he remains safe.
The Iron Butt is a parody of a device called the "Iron Lung," which is used for breathing problems because of Polio.