Hook's Machine is a Quest in Skull Island. When Mickey and Gus arrive there, they see the Pirate Conversion Machine transforming the pirates into Bashers. They don't have to deal with it, though. They're just here to raise Smee's Boat.
Should Mickey choose to carry out the Quest, he has to find the four Paint and Thinner Pumps around the island that connect to the PCM and fill them with either Paint or Thinner. Two Pumps are on the right side of the island, and two are on the upper level (in the Skull's "eyes")
If Mickey fills all four with the same substance, the Quest is completed. However, the consequences are different. If Mickey filled the Pumps with Paint and converted the robots back into pirates, he can get an extra Pin. If he filled them with Thinner and wrecked the PCM, Thinner flows out of the "eyes" and makes the island more dangerous.
Gus will warn Mickey if he tries to fill the Pumps with opposite substances, but afterwards Mickey can do it anyway. If the Pumps are filled with Paint and Thinner, the Machine jams, preventing it from being reversed or destroyed, and the Quest is failed.