The Krabby Patty Pencil is a pencil that is used in the Krusty Krab. It just appears in the episode: To SquarePants or Not to SquarePants. SpongeBob uses it to write on the papers to work at the Krusty Krab.
It is a normal looking pencil that has a Krabby Patty on it. The Krabby Patty is probably used as an eraser.