You can install OS X on it if you up the memory enough. You can also install Ubuntu Linux and use it as a server. I just recently installed Ubuntu 6.06 "Dapper Drake" on a 600 MHz iMac G3 with only 256 MB for desktop use and it was quite responsive. I was able to browse the web with Firefox, edit pictures with Gimp, and listen to streaming music using RhythmBox. All with nary a hitch.
Or you could donate it to Goodwill or even Apple. Apple will take the old Macs as well, especially if you're trading in. Just don't expect a ton of savings....it IS some years old now. But that doesn't make it any less useful.