From Grimace:

Grimace is a fantasy character, and not intended to be anything specific. However, ever since the character's introduction there has been much speculation (though much of it tongue-in-cheek) about his appearance. Because the majority of McDonald's characters more or less directly represent a food product sold at the restaurants (e.g., Mayor McCheese, The Fry Kids, McNugget Buddies, etc.) many have naturally tried to guess as to what, if any, food product Grimace is supposed to represent. It is often suggested that he represents the contents of a milkshake. Grimace's "official" role, according to McDonald's, continues to be representative of the chain's milkshakes. However, he does this out of love for the taste, and not because he is in any way a shake-based creature himself.