Ratatosk is one of several animals who live on and upon Yggdrasil the world tree itself, not residing natively in any of the nine realms of creation. He is not a major character in any story, but is commonly invoked in descriptions of Yggdrasil and in images of the tree. Ratatosk’s purpose, to the extent that he has one, is merely to pass messages between the eagle who lives at the top of the tree and the serpent Nidhogg who lives at the root of Yggdrasil, eternally gnawing.
Here’s the only mention of Ratatosk in the Poetic Edda, in stanza 32 of Grimnismal, presented with some context so you can see that the squirrel is described as just one piece of an incredible, vital ecosystem.
31. Three roots there are | that three ways run
‘Neath the ash-tree Yggdrasil;
‘Neath the first lives Hel, | ‘neath the second the frost-giants,
‘Neath the last are the lands of men.
32. Ratatosk is the squirrel | who there shall run
On the ash-tree Yggdrasil;
From above the words | of the eagle he bears,
And tells them to Nithhogg beneath.
33. Four harts there are, | that the highest twigs
Nibble with necks bent back;
Dain and Dvalin, | . . . . . .
Duneyr and Dyrathror.
Ratatosk is also mentioned in the Prose Edda written by scholar Snorri Sturluson after the Viking Age had ended. His report in Gylfaginning is similar:
“What more mighty wonders are to be told of the Ash?” Hárr replied: “Much is to be told of it. An eagle sits in the limbs of the Ash, and he has understanding of many a thing; and between his eyes sits the hawk that is called Vedrfölnir. The squirrel called Ratatöskr runs up and down the length of the Ash, bearing envious words between the eagle and Nídhöggr; and four harts run in the limbs of the Ash and bite the leaves. They are called thus: Dáinn, Dvalinn, Duneyrr, Durathrór.
There’s not a lot there. It would be easy to try to read some deep mythological meaning into a squirrel who carries “envious words” up and down the wonder-full world tree. Some scholars have attempted to understand Ratatosk as one more sign of decay built into the tree. Ratatosk’s name can be understood to mean “bore-tooth”, so between his drilling into the tree and passing of angry messages, he could be as bad as the harts who eat the tree limbs, the serpents who gnaw at the roots, or the various other forces that will eventually bring the tree down at Ragnarok.
And as John Lindow points out, “[i]n the sagas, a person who helps stir up or keep feuds alive by ferrying words of malice between the participants is seldom one of high status, which may explain the assignment of this role in the mythology to a relatively insignificant animal.” [Lindow 258]
Or as Simek and others point out, maybe they put a squirrel in the most famous of trees because squirrels live in trees, and it makes Yggdrasil a little more real if it’s got a squirrel in it.
In any case, Ratatoskr is one of many mythological creatures who populate the cosmos who is in some way part of the ongoing struggle between order (eagle) and chaos (Nidhogg), even if that role approaches insignificance. And squirrels are cute?