A percolator (often referred to as a perc) is designed to diffuse hot smoke through the water inside the chamber of a bong to delivery smoother, cooler, and less harsh hits.  There are dozens of different types of percs, and each one offers different advantages and disadvantages.  On a bong, a perc should effectively diffuse smoke by exposing it to as much surface area as possible - thus allowing the water to cool down the smoke before it is inhaled.