The Oracle is a large mysterious device, and as Keen himself calls it, a "monolith of ancient wisdom", located in Gnosticus IV. Eight of the Gnosticenes, the chosen Council Members, are needed to activate it, although their exact roles in the process are unknown (at least three of them chant the words "OYIM", "DIYAM" and "ONEM", and one of them clicks a large switch hidden behind the device).
The Oracle appears to posses a great deal of knowledge of current events in the Galaxy. It is capable of "speaking" to give the information it has (though it is not clear if it has a voice or if it sends telephatic messages). It can also project images in mid-air to illustrate the information it is giving. It has a bright light in its center, which glows red when it is activated, and yellow while speaking and showing images. According to a comment by one of the Council Members, it seems to run on batteries.
The writing in Standard Galactic Alphabet on the Oracle reads "ACME ORACLE", which implies that the Oracle was made by the ACME company (the same one that created the Vorticon Mothership blueprints, and possibly the mothership itself). See also the article on Acme Corporation.
The Shikadi had captured the eight Council Members (see Keen 4 Story) to prevent Keen from finding out information about themselves (the Shikadi). Getting information about the Shikadi is the very reason Keen goes to Gnosticus IV in the first place. After Keen frees the Council Members, the Oracle is able to tell him about the Shikadi: their basic nature, their location, their plan, and (most importantly) their appearance.