Third Hole in Cribbage Board
That is for the Game Peg (also known as a spilikin). At the bottom of the board, you see the three straight stripes - those are for keeping track of the number of games you have won. Until you have actually won a game, your spilikin for tracking wins is stored in that third hole.

Consider the following picture: it appears blue has just won the game, and is awarded two game wins for skunking the red player. The red player has yet to win a game, so his spilikin is still in the starting position.