Unidentified pneumatic part
My guess is an oiler. Air tools with moving parts want a small, but steady mist of oil in the air. With some, like an air nailer, they simply say you can add a couple of drops to the connector before you attach the hose to it. But some tools want a steady fix.

Check out this photo and description over at Amazon.com:



Keep in mind, that if you use your oiler with a hose between the oiler and the tool, that hose will now contain oil. While the hose can be used easily with any tool that can tolerate oil, you will not want to use it with any kind of spray painter since water/latex based paint and oil don't mix well.