Teddy Bear is an important item in OMORI.
Candlie's lost friend.
Found after defeating a Rare Bear found in Sweetheart's Fanmail Graveyard, right below the cathedral.
The bear's location.
Upon talking to Candlie, located in Pyrefly Forest, while holding this item, it will revert back into her friendly bear, completing her quest "A Good Listener" and rewarding with a Rubber Duck.