Look up "lensatic compass" or "army compass" this looks to be the same thing but much nicely made from brass. The cover with the glass would flip up on the hinge, the brass tongue you see under it should also flip up. Then you sight through the end of the "tongue" and the glass, which should have a prismatic effect allowing you to see the compass reading (bearing) directly under the image of what you are looking at.
If the hinge is frozen try a little PBlaster on it to get it started again.
A modern pot metal lensatic compass is usually a $5-10 item on the shelf at any camping store.
Very cool I'll bet you get a lot more than that on E Bay