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The compass is an item a player can find which will indicate the direction in which they are travelling.
The default key-binding for compass is K. As with most tools, a double tap will toggle the compass on and off.
Compasses can be found in Residential/Civilian areas. Compasses do not use up a normal Inventory slot, but go into a tool-belt slot with your flashlight, matches, etc; they will however use one inventory slot when stored in a backpack.
If everyone in your group has a compass, you can use it to call out bearings to where targets reside. "Bearing 185, two snipers" is an example of drawing attention to something that may be hard to spot for your teammates.
The compass also glows green at night making it easy to see in darkness.