According to my husband, this is called a pounce wheel. It is used to trace patterns onto material or other surfaces.
If WalMart has a fabric department, they still carry them today. They also have what they call tracing paper which is a heavy carbon paper. You place the tracing paper onto the object your want to transfer the pattern to. Then you place the pattern on top of the carbon paper and wheel along the line of the pattern. This transfers the pattern onto the desired fabric or surface. This one is a vintage form and the new ones have a plastic handle. The depression just below the wheel is for your thumb.