nothing, as far as anybody knows. Brian Fehdrau, the lead programmer who has posted on the GameFAQs SoE board in the past, recalls that it was probably intended as a gag item: but he can't remember whether the gag was to have a "magical" item do nothing, or for it to appear to do nothing, and then have some obscure purpose. :/ so we're assuming the former until proven otherwise.
i couldn't find any references to this Charm when searching through the ROM's disassembly, so it likely has no effect in battle. however, NPCs have a more complex system when responding to possessed charms that's implemented via scripting, and i wouldn't notice this with a simple search, so it's possible Magic Gourd has some dialogue effects.
We have EVEN MORE themes now, but some old ones are gone...