It appears as a red trash chute (or shredder), and has a yellow sign that says in red text, "Trash Chute." At first, Patrick did not know how to make it shred. SpongeBob later showed him by using the compactor switch.
Eugene H. Krabs
Role in episode
Due to him not having any money to pay for the large quantities of Krabby Patties he ate, Mr. Krabs has Patrick work for the Krusty Krab as punishment and makes him clean the bathroom and put ice trays in a barrel, both at which he fails. Because of this, Mr. Krabs gives him a simple task to the advantage of Patrick's clumsiness: shoving trash bags down the trash chute.
Patrick shoves as many bags down it as he can, but they don't go down. SpongeBob drops by to help him, informing him that he didn't have the compactor switch turned on.
The machine then turns on and operates and does as it should. However, Patrick then sees SpongeBob carrying a bag of Mr. Krabs' money which was meant to be stored in his safe and naïvely shoves said bag down the compactor as well, despite SpongeBob warning him that it's not trash. This causes the machine to disfunction and explode, destroying the Krusty Krab in the process.