A compass is a navigational instrument for determining direction relative to the Earth's magnetic poles. It consists of a magnetized pointer (usually marked on the north end) free to align itself with Earth's magnetic field. The compass greatly improved the safety and efficiency of travel, especially ocean travel. This one can't do that though, because it's broken.
Can be found under a skeleton in the crashed scout bus. After being found, one can then repair it (with a Repair skill of 30, using the nearby compass sensor module, or taking it to a work bench), fixing it into a fully functioning compass.