One day at the Krusty Krab, Patrick ordered a Krabby Kiddie Meal (a small version of a Krabby Patty, but thirty percent cuter according to SpongeBob but costs the same as a regular Krabby Patty). Patrick complained because it did not come with a toy and demanded a refund, alerting Mr. Krabs. Therefore, Mr. Krabs took a Krabby Patty and some straws, and created a Krusty Krab licensed toy. SpongeBob came up with the name "Patty Pal." SpongeBob and Patrick loved playing with the toy, so a whole shipment of Patty Pals was delivered to the Krusty Krab.
The Patty Pal toy is a similar to a Krabby Patty, except with pickles for eyes, a ketchup smile, and dimples, and straws for arms and legs. It is also edible, as Patrick is seen eating one so he does not have to share it with SpongeBob. A Patty Pal toy costs $13.00.
Patty Pal is probably a reference to McDonald's Happy Meal toys. Although, it could be a reference to other kids meal toys as well or instead.
If Patty Pals were actually made out of real Krabby Patties, they would soon spoil and get all messed up. This did not happen to SpongeBob and Patrick's, despite being played with all day and all night. Though, this is what happened to Patty in the episode "To Love a Patty."
Despite Mr. Krabs "selling them like hotcakes," Patty Pals do not appear to be sold after the episode.