That is Patrick Star's prosthetic. See, in the patty accident of '12, Spongebob was making a batch of Krabby Patties. Unknown to him, Mr. Krabs had decided to lace the secret sauce with an explosive compound in a quest to blow up the Krusty Krab and collect the insurance money. Spongebob had enlisted the help of his friend that day since he knew how much he loved tarter sauce. Patrick was enjoying his vat of said sauce while Spongebob mixed the patties. The explosion was so massive that our yellow friend was killed instantly. Patrick lost an arm and do to complications it wouldn't grow back. After exacting revenge on Mr. Krabs, he fashioned this arm so that he made roll through the streets of Bikini Bottom, in remembrance of his spongy friend.
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