The Pencil is an object that, according to Wally Jabrowski, has the power to create pennies. If you tap the pencil on a solid surface, a penny appears. In one of the promotional trailers for the Lost Room (in which a scientist tries to find out how the pencil works and ends up going insane) it is revealed that each penny is dated 1961, the same year that the Event occured.
Wally apparently knew one of the people who owned the pencil, and says that he made $500 every day by constantly tapping the pencil. After six months of this, however, he had 'tapped his brains out'.