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In my opinion, Meyer Wolfsheim serves to show Gatsby in a more positive light. He shows us what the really bad people are like so that Gatsby does not look so bad. Here's how:
We know that Gatsby has made a lot of money and that he has done so by various illegal enterprises. In that way, he is a lot like Wolfsheim. However, Wolfsheim is a much worse person than Gatsby. For example, Wolfsheim does not care about Gatsby enough to take the trouble to go to his funeral. By contrast, when Daisy kills Myrtle, Gatsby stands by her.
By acting in ways like this, Wolfsheim shows us that Gatsby is not really a criminal type, even if he did illegal stuff.
Just to put a different spin on things: it has always been my opinion that the Wolfsheim character betrays F Scott Fitzgerald's blatant anti-semitism. Here we have Wolfsheim, identified, in the most stereotypical ways, as a Jew, who is the sleaziest and most nefarious character in the novel. He does his dirty business deals through a cover company named the The Swastika Holding Company. Really now. And this same man, though his knows Gatsby well and has been doing shady business with him, refuses to have anything to do with his funeral and prefers to remain anonymous. I think Fitzgerald's intentions are obvious. And I am not alone. Here's an excerpt from an essay by Martin Hindus, Assistant Professor of Humanities at the College of the University of Chicago:
F. Scott Fitzgerald and Literary Anti-Semitism:A Footnote on the Mind of the 20's June 1947
I recently read The Great Gatsby for the first time, and it struck me that in all the praise of the book I had heard from both Jews and non-Jews, something important had been omitted—that viewed in a certain light the novel reads very much like an anti-Semitic document. It is an excellent novel, no doubt of that, and part of its appeal is that the reader knows (though he may be unable to define his knowledge) that the story and the characters are general and representative rather than particular and confined. Fitzgerald has written a tragic satire on American civilization, with the implicit invitation to disentangle the idea of which the personages and events are outward symbols. The individuals portrayed stand for the classes (but not in the Marxian sense) to which they belong. That is nothing new: the same is true of every serious literary work of art.
The Jew who appears in The Great Gatsby is not the villain of the piece, but he is easily its most obnoxious character. His name is Meyer Wolfsheim. He is a gambler by profession. His nose is flat and out of both nostrils two fine growths of hair “luxuriate.” His eyes are “tiny.” When he talks he “covers” Gatsby with his “expressive nose.” We first glimpse him in a mysterious conversation with Gatsby about a man named Katspaugh. When, at this point, the narrator, Nick, comes in and meets him, Wolfsheim mistakes him for somebody else whom Gatsby has mentioned and he immediately begins to talk of a business “gonnegtion.” That “gonnegtion” runs like a theme through the whole book whenever Nick thinks of Wolfsheim.
Of course, you are free to draw your own conclusions...
In my opinion, Wolfsheim’s character gives us insight into who Gatsby is. After we meet Wolsfsheim and realize how close the two truly are, I feel I get a better understanding of how Gatsby earns his living and the kind of people with whom he associates. We learn Wolfsheim has fixed the World Series, he is involved in illegal money-making ventures, he has had close friends murdered. When Wolfsheim meets Nick he immediately assumes Gatsby brought him to lunch because Nick is looking for a connection.
The fact that Wolfsheim and Gatsby are apparently closely connected is one hint that reveals that Gatsby’s fortune has come from illegal means and activities.
I'll present still another angle, although I won't even try to top jseligman's excellent and insightful answer above.
The character, Wolfsheim, if I can use an analogy or metaphor, fleshes out, gives verisimilitude (I said it was an analogy or metaphor) to the character of Gatsby. Wolfsheim gives a kind of legitimacy to Gatsby's occupation. The reader knows Gatsby is for real, when he sees the connection Gatsby has with a figure who fixed the World Series. Wolfsheim solidifies Gatsby's occupation.
Wofsheim, also, simultaneously, clarifies some of the mystery surrounding Gatsby, while adding to it. Wolfsheim clarifies how Gatsby became so wealthy, while creating a whole new list of questions.
Wolfsheim serves 3 purposes in the novel.
1. Meyer makes one rethink exactly Mr. Gatsby is. Surely, no gentleman would deal with such a seedy man, so why exactly is Gatsby associating with Wolfsheim?
2. Meyer is used as a way to advance the plot. Later on in the novel, Tom discovers Gatsby's dealings with Meyer and uses this information against Gatsby during the climax of the book.
3. There are those who will disagree with me on this third point, but it is my own opinion that Meyer shows us a little insight on Nick Carraway. Our narrator describes in excess Wolfsheim's large nose and seedy looking appearance. Now, one could argue that he is just describing the man, but no other character is given such treatment. It is well known that Tom is the racist bigot, but perhaps, through his description of Wolfsheim, Fitzgerald wanted us to realize that Nick is not the best person himself. Most would say that, in the end, Nick and Gatsby are the only "good" people in the book. However, I say that only Gatsby holds this distinction, and Wolfsheim is just one example throughout the book that Nick is not the nice guy we'd all like to believe he is.
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