Sometimes (in some traditions) known as a Boline, this is the knife that is used for actual cutting. (As opposed to the Athame, which is for symbolic and magical use only.) Traditionally, it has a white handle so that it's easy to tell from the Athame. In some traditions it's a special knife, and is kept for cutting things in the circle only. In others, it's OK to dedicate a knife that you also use in the kitchen. We tend to use Leatherman (tm) tools or Swiss Army Knives, because we think that a working tool should be able to really work, and it's much easier to cut cloth or string with scissors than with a knife. But that is up to the individual.
It doesn't really have to be on the altar; but this one (which doesn't actually exist, as far as I know) is there so that it will be handy for use, and because it's very pretty and balances the arrangement of things at the Eastern side.