The Potion Shelf holds Potions. It can hold up to 12 Potions at once. Moving the mouse over a potion on the shelf shows what kind of potion it is. The shelf itself can also be used as fuel for smelting.
Only certain items can be put inside the shelf, mainly those having to do with potions. The potion shelf itself can be put inside another potion shelf, appearing as though a mini version had been spawned on the shelf.