Not SpongeBob used to work at the Krusty Krab. He cooked the Krabby Patties instead of SpongeBob. He worked between Jim and SpongeBob, because Squidward did not have hair when Not SpongeBob worked there. He was briefly shown in a flashback in "Truth or Square," in which Squidward was reflecting on how happy he was before SpongeBob moved in.
Squidward is annoyed by SpongeBob, he seems to be annoyed by Squidward as he was happy at the time. It is unknown if Not SpongeBob is his real name or if Squidward just remembered him that way to show that he wasn't SpongeBob.
The idea where main characters' enemies hate the characters was used later for the character Patrick Not-Star.
When you see the picture above, the spatula is a slightly slant, but on most episodes it's straight looking.