The hippocampus, so named because its shape vaguely resembles that of a seahorse, is responsible for encoding long-term memories and helping with spatial navigation. It's one of the phylogenetically oldest parts of the brain, and the first part chosen to be artificially replicated as a brain prosthesis. The hippocampus is known to be associated with the consolidation of episodic memories, which are memories of personally experienced events and their associated emotions. In contrast to semantic memories of abstract facts and their associations, episodic memories can be represented as stories. Damage to the hippocampus results in an inability to form new long-term episodic memories, though new procedural memories, such as motor sequences for everyday tasks, may still be learned.
In schizophrenia and certain types of severe depression, the hippocampus shrinks. The hippocampus is also known as one of the most highly structured and studied parts of the brain, which is why it was chosen for prosthetic emulation. Although the exact neural algorithms are not known, they have been modeled in their entirety. Because the hippocampus is so old, it has been optimized extensively by evolution and is basically the same across all mammal species. This is why it was possible to design a hippocampal prosthesis through the exhaustive study of rat hippocampi suspended in cerebrospinal fluid.
For navigation, the hippocampus contains "place cells" which activate depending on the perceived location of the animal. A strong case can be made that these cells exist in the hippocampus because memories must be employed to determine current location from more fundamental variables like orientation and speed. The activation of these place cells has been observed in humans navigating virtual reality towns. An intact hippocampus is required for many spatial navigation tasks. The hippocampus was originally associated, incorrectly, with the sense of smell, which is actually processed by the olfactory cortex.