What is it supposed to hold? I can't find anything that can be placed into it as the square disappears each time I pick something up to try to move it in.
Please hide if the answer is a spoiler...

You are right!! Thank you!!
That slot disappeared when I left the Cryo facility so I thought it's some trick or bug.
But after seeing you reply, I realized it was just me HOLDING the rifle now instead of over the shoulder.

Feeling silly now but then again, the game has a really tricky interface when it comes to equipping items and gears.
Took me a long time to figure out that bows can be hung on one shoulder and (shockingly) a duffel bag can go over the other! And that's only because I double clicked to pick the duffel bag up and it seemingly "flew" to that shoulder! LOL!

Abit OT but I also discovered the best way of carrying glass shards around is to put them in a plastic bottle! 15 shards + bottle in 4 squares instead of 10! The only other thing I found that can go into a bottle are "handful of strings" but the bottle can't fit 2 bunches.

Please do mark linibot's post as answer then. So other users know your question has been answered and know where to look for the answer. I bet linibot won't mind the (well deserved) +rep, either.