Your sentence has a redundancy problem (“purpose” and “used for” mean the same thing). Here are the correct and natural versions:
Best correction
“Many people don’t know what it is used for.” ✅
Other correct options
- “Many people don’t know its purpose.”
- “Many people don’t know what its purpose is.”
- “Many people are unaware of what it is used for.”
✔ The issue in your sentence:
“what its purpose is used for” repeats the same idea twice.
If you want, I can also show you a simple trick to avoid this common English mistake. ✍️