There is a lot more to the game. Unfortunately, the difficulty selectors in that Shockwave interpretation are non-functional. Level 1 cuts out much of the game's enemies and topography. There are at least two more castles, a large fog-enveloped maze (the player can only see a short distance around his avatar), the blue maze becomes far larger and more complex... the most irritating enemy, the bat, which steals items and drops them in random locations in the game world...
The magnet is for use in retrieving items dropped in screen locations you can't easily reach. Enter a screen with the magnet in hand and any items on the screen are drawn to it. Sometimes that's the only way to reclaim an item dropped by the bat (locations like the space between a castle's towers). If I remember correctly, the magnet is the only item the bat won't touch.