Located in East Village of Outcasts outside of the ruined house containing the Purple Chest. By hammering down all of the pink pegs, a secret cave appears to the south which contains one item. Needless to say, this item is Hammerlocked.
If the Pegasus Boots (and at least one sword) have been discovered prior to this item check, they can be combined with the Hammer to Item Dash, which will knock out an entire row of pegs very quickly, so most runners will wait to route this check into their progression until they have both the Pegasus Boots, one sword, and the Hammer.
Thanks to MrZ for helping to clarify information regarding this term.