Pepperthumb's cake is a magical food item that can restore all your maximum Hp (hitpoints) in the game. For example, if your current Hp is 1 and your max Hp is x (depending on the character's level), then eating the Pepperthumb's cake will restore your current Hp into the max Hp your character have in his level.
Pepperthumb's cake is an unlockable item, and will be unlocked after you play a Hobbit character and managed to get him to level 5 in any quest (Hard but not Impossible).
Trivia (randomly quoted after your character died) Bro tip: Pepperthumb is actually the nickname of urb's gf. A credit for her because she bakes such great cakes..