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The castle itself was built by NICOLE via nanites in memory of the splendor of Old Mobotropolis, and serves as the home of the Royal family. Since Royal Army General Amadeus Prower's revolution (which served to re-form the Kingdom into the Republic of Acorn) it now also acts as the primary meeting place for the Acorn Council, with the counselors all having offices and optional residences inside the Castle. (StH: #176, #178, #179)
Previous versions of Castle Acorn existed in Mobotropolis (which became the command center of Dr. Ivo Robotnik after his military coup and was destroyed by O.T.I.S.), and later Knothole (which was destroyed by Dr. Eggman's attack on Knothole). (StH: #43, #70, #175)
A version of the Acorn castle exists in Anti Mobius as well, which has acted as the seat of power for the Anti Freedom Fighters and later King Scourge and the Suppression Squad since they took power. (StH: #193)
The castle was later destroyed by the Battle Bird Armada during their attempt to excavate Babylon Garden. NICOLE eventually restored it, only for it to start breaking up due to the efforts of Tails Doll. (SU: #36, StH: #247, #252)