Compass

The Compass is an accessory item which when equipped, will display under the toolbar your "Position" to the East or West of the center of the map in 1/2 block (1 foot) increments. The center of the map is usually very close to the initial spawn point, but they do not coincide always.

It is used at a Tinkerer's Workshop with a Depth Meter and a Gold Watch to craft a GPS, saving two equipment slots for other accessories.

Like most accessories, it may be found with random modifiers and can be reforged.

Acquisition

 * Compasses are dropped by any kind of Mimic, which spawn anywhere under the Level Depth only after the Wall of Flesh has been defeated.

Trivia
This is a clear reference to the Legend of Zelda series by Nintendo where the Compass is an item obtained in most dungeons.