This is a standard device used to help protect your instrument from dry climates. Simply dampen the internal sponge (careful to squeeze out any excess water), and insert into the f-hole of your instrument. In very dry climates, it is not uncommon to use two of these devices.
from the Manufacturer:
The Dampit Cello Humidifier protects your cello from damage due to excessive dryness. A soft rubber sleeve encloses a special open-cell sponge. Simply soak in water, wipe off, and insert through an F-hole. Instructions and handy humidity gauge included. The Dampit humidifier provides long term humidity protection and guards against your cello cracking and warping.