It is a smaller version of the Krusty Krab Playset, which itself is a playset of the Krusty Krab, and is kept in SpongeBob's House Playset. It looks exactly the original playset, except for the size difference. Much like the original, one must open the roof of the playset in order to play with the action figures featured.
After Mr. Krabs makes SpongeBob take a vacation from working at the Krusty Krab, the latter is at home, stressed out from being isolated from his job. To cheer himself up, he plays with the Krusty Krab Playset, but reenacting the scene earlier in the episode where Mr. Krabs kicks him out of the Krusty Krab only triggers his memory of the restaurant, so he makes Toy SpongeBob go home and play with his own Krusty Krab Playset, which is a smaller version of the original. This, however, only worsens SpongeBob's stress after Gary assures him so.
The walls are the only part of the inside of this playset that are seen, unlike the original Krusty Krab Playset, where the dining area and ordering area are seen when SpongeBob plays with it.
Because the inside of this playset is only partially seen, and that Gary interrupts SpongeBob just before he is about to reenact the scene where Mr. Krabs kicks him out, mini versions of Toy Mr. Krabs and Toy Patrick aren't seen in it.
SpongeBob doesn't have Mini Toy Squidward in his workstation or make Mini Toy SpongeBob walk on restaurant's floor in this playset, whereas with the original version of it, he does. Instead, he plays with the toys near the playset's ceiling.
This is likely because his hands wouldn't fit that far.