Nitrous oxide is a quest item found during the Recruitment Drivequest. It serves no purpose during the quest and probably only exists to make the task of correctly combining other chemicals more difficult. If you attempt to use this on any other chemicals, or even open it, it escapes, followed by your character laughing, leaving an empty vial.
Nitrous oxide, also known as "laughing gas" due to the euphoric effects when inhaling it, is commonly used by dentists and surgeons for its painkilling capabilities. It is also commonly used as a propellant.