Literally, the Valley of Ashes is a massive trash dump. Keep in mind that Gatsby's setting of the 1920s is before the EPA and all of our current environmental regulations. The Industrial Revolution took place not too long before the Roaring Twenties, and so the pollution, excessive waste, and overcrowding of that time period carries over into Nick's era. Its name derives from the fact that it constantly "smokes" and cast a grey tint to the air and everything around it. It is conveniently located between the city and "eggs," making it easy for the waste of both locations to make it way there.
Symbolically, the Valley of Ashes is a wasteland of hopes, ideas, and even human life. Myrtle Wilson is trapped there and is willing to escape her earthly hell if only to be with an abusive, philandering married man. Fitzgerald's description of George Wilson demonstrates that the Valley of Ashes has drained the life out of him. He probably once considered himself an entrepreneur, but the location of his business has slowly taken away his livelihood and his wife. One could argue that because the Valley is the site of Myrtle's death and Gatsby and Daisy's permanent separation that it also takes away Gatsby's dream; at the very least it takes away Myrtle's life and George's sanity.
The Valley also serves as a wasteland of the filthy rich. As they live their lives of excess in the city and on the "eggs," they transport their waste to the Valley, removing distasteful reminders of their overindulgence. This wasteland demonstrates the the corruption of Old Money and the East has far-reaching effects.
Finally, because the Valley of Ashes is the location of the Dr. Eckleburg billboard, which represents an uninvolved god, it serves as a hell-like location. "God" looks down on man's misery and waste and does nothing, perhaps because Fitzgerald implies that for the Old Money people, God has been pushed to the trash heap.
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