Refuse chamber is meant to be a garbage site where minims take waste from fungus. The point of it having detrimental effects is supposed to discourage the player from building it in the center of the colony; the waste site should be far away. The only caste of ant that is able to be near the chamber without having the detrimental effect is the minim because they are the ones dumping the garbage there.
It only applies if there is refuse in the chamber. It causes a debuff that slows the ant by 35%, slows its attack and damages it by half its health over 60 seconds. You pretty much don't want any ants walking through it (does not effect enemies) so you have to build it in a location where they wont.