I think, it's an unused item. The client has a lot of them, especially ones from Season 1.

The tree needs to be cut down for story reasons. If you have sold your only axe, it acts as a pickup to be used to cut the tree down. If you decide to remove it from your inventory and have no axe equipped, then you cannot cut down the tree and will have to do it all over again. It's purpose is to prevent someone who really messed up somehow from getting so far and not being able to continue. After the dungeon, you can chuck it.