They are light tan and dark tan and look like big peanuts with long eyestalks, and they squirt out gooey light green liquid as a form of self-defense.
They were all in Mrs. Puff's Vegetable Garden. Mr. Krabs tries to steal them from Mrs. Puff's garden because he wants to give food to Pearl, who is having her growth spurt and is getting even hungrier by everything she eats. Mr. Krabs thinks that the peanut worms are regular peanuts, but he then finds out that they are peanut worms.