It's filter dirt and water from entering your tools.
Usually have the bowl is pointing down so you can use the drain valve on the bottom to remove any water.
Another question: The folks that gave us this unit said that it should be drained of ALL air after each use-- I assume they meant at the end of the day but while I'm no authority on air compressors, I've never heard that was a best practice. I usually disconnect the power but don't deflate the air tank. Have I been doing it wrong all this time?
There is no reason to completely empty the tank after each use or even each day. Just drain, from the bottom, until no more water comes out, done.
Generally around $10 at Harbor Freight ...They do make automatic drains for compressors. It screws into the drain hole and discharges water as it builds up. You need enough ground clearance for the fitting but they make them pretty compact. Not for use in below freezing environments.