As Ishmael tells us something like ten million times, the Pequod is out to hunt sperm whales, from which it can harvest sperm oil and spermaceti. The spermaceti is what gave the sperm whale its name; this precious white waxy stuff, which actually comes out of the sperm whale’s head, was once mistakenly believed to be the actual sperm of the right whale.
Of course, these straightforward facts about the sperm whale don’t stop Ishmael (or Melville) from making even more bawdy jokes about it. After all, if you’re on board a whaling ship with three dozen other guys, and your main job on some days is to squeeze lumps of white goo called "sperm," you’re bound to start punning sooner or later.
Shmoop encourages you to laugh at the jokes (we certainly are), but we also want to point out that the sperm comes to represent something other than profits for the whaling voyage or an opportunity for a nudge-nudge pun.
In Chapter 94: "A Squeeze of the Hand," Ishmael tells us that squeezing these lumps of spermaceti made him forget about the revenge quest; he says he could "wash [his] hands and heart of it" in "that inexpressible sperm" and that he "felt divinely free from all ill-will, or petulance, or malice, of any sort whatsoever" (94.4). The sperm also makes him want to melt together with his fellow sailors, forgetting any petty grievances they might have against one another.
Basically, Ishmael feels like he could love the whole world at this point. Now, there are certainly homoerotic overtones here, but there’s also a sense that this is another of Ishmael’s mystical, pantheistic experiences.
This sort of thing is just what gave the "Transcendentalist" movement its name. Transcendentalism was a political, philosophical, and literary movement that emerged in America in the mid-nineteenth century with advocates like Ralph Waldo Emerson and Henry David Thoreau. Proponents felt that spiritual transcendence was a more valuable form of experience than physical or strictly intellectual pursuits, and could be achieved in part through solitary, meditative communion with Nature. You can see echoes of this philosophy in Ishmael’s satisfied squeezing of the spermaceti.