That is the pressure relief valve. Some water may seep out of it.
Weeping or dripping of a pressure-temperature relief valve while the water heater is running DOES NOT mean it is defective. This is normal expansion of water as it is heated in the closed water system of a recreation vehicle. The Atwood water heater tank is designed with an internal air gap at the tank to reduce the possibility of weeping and dripping. In time, the expanding water will absorb this air.
To replace the air follow these steps: To restore the air:
1. Turn off water heater.
2. Turn off incoming water supply.
3. Open the closest hot water faucet in the coach.
4. Pull handle of pressure-temperature relief valve straight out and allow water to flow until it stops
5. Allow pressure-temperature relief valve to snap shut, close the faucet then turn on the water supply
Try that and see if it helps. IF not it may need to be replaced if it is more then just a drip
Hope this helps some, IF you are satisfied with my efforts please feel free to select a STAR rating on the page... Robert