The magnet is a quest item that the player must use in the Witch's House quest to unlock the elaborate locking mechanism on the door into her garden. The magnet is placed onto the back of a mouse which must be lured from its hole in the wall by placing a piece of cheese outside the hole. The mouse then returns to its hole and unlocks the door in the process.
There is another magnet that can be found during Recruitment Drive quest, but it is unknown whether the two can be used interchangeably.