The Ultra Small Reactor is a Key Item in Xenoblade Chronicles. It is received as a reward when Colony 6 Housing, Commerce, Nature, and Special have all been restored to level 1.
The Ultra Small Reactor can then be given to the Gem Man at the Gem Man's Stall in Colony 9 to complete The Gem Man's Invention, for which the party receives a Mobile Ether Furnace, enabling them to craft gems anywhere. This option can be accessed by opening the menu palette, selecting the items menu, and then selecting Gem Crafting in the items sub-menu. This option is grayed out and inaccessible until the quest is completed.