that drug plant he picked up and planted was a magic plant and by feeding the magic leaves to the sage it poops out magic stones which are worth a shit ton, i would guess that maybe the elves don't know that the sages make the magic stones n what not because they think it just appears naturally.
kinda looks like a caterpillar with an adult silk moth's head on top (yes, I know the familiar's anatomy is the ultimate nitpick in a series that's all "let's see how creative I can be with metaphores for sex)
I do like more call the Caterpillar "Imosuke", also think "shit" should be translated as "poop" since the raw says "うんち", it's a very childish way to say "うんこ"(shit), it's not that will change that much the meaning but gives the feeling he still in his childhood and giving more "life" to the character, anyway it's just a personal feeling