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The castle itself was built by Nicole via nanites in memory of the splendor of Old Mobotropolis, and serves as the home of the Royal family. Since Royal Army General Amadeus Prower's revolution (which served to re-form the Kingdom into the Republic of Acorn) it now also acts as the primary meeting place for the Council of Acorn, with the counselors all having offices and optional residences inside the Castle. (StH: #176, #178, #179)
Previous versions of Castle Acorn existed in Mobotropolis (which fell to Dr. Ivo Robotnik during his military coup), and later Knothole (which was destroyed by Dr. Eggman's attack on Knothole). (StH: #43, #70, #175)
A version of the Acorn castle exists in Anti Mobius as well, which has acted as the seat of power for the Anti Freedom Fighters and later King Scourge and the Suppression Squad since they took power. (StH: #193)