It vents to the outside via a vinyl flap. The purpose is to equalize pressure in the cabin and provide a way for air to move front to back. Closing your doors would be more difficult without it, and heating/cooling the air in the cabin would take longer.
I wouldn't worry about it. It's protected by your side bumper cover, so the only way water might get in is if you spend a lot of time at the high-pressure car wash. It's probably not worth the effort to replace it.