The Compass is part of Lara's Inventory in the original Tomb Raider and in The Last Revelation. The in-game compass functions like a real one: the red arrow always points north.
Lara has a compass in her inventory, it'll appear in the circular display of the items.
In The Last Revelation
In The Last Revelation, the Compass is located on the left side of the Inventory screen. The direction it points is relative to Lara's position, not to the camera's position.
In addition to helping in getting oriented, the Compass can also be used in cheating in The Last Revelation. To use cheat codes succesfully, Lara has to be facing directly to north. The easiest way to do this is to find a block and grab the south ledge of it. When Lara is positioned correctly, the red needle that points north turns transparent, at least on most video cards.
Compass in Tomb Raider
Compass in The Last Revelation