It's an awl for making holes for brads which are a type of nail. Apparently one is less likely to split the wood if you make a hole with a bradawl before driving home the nail.
The 'brad' part of the word comes from Old English 'brord', which meant a point or even a blade of grass, and 'awl' from Old English '�l', which meant a sharp-pointed tool for making holes. A brad today is a nail, as Fitzer says, but it is somewhat unusual in that - instead of a flat head - it usually just has a bent-over lip at one end.