Punch in the code at the Sonic/Tails selection screen. You'll get a free emerald.
Go the the title screen and punch in the code.
Get the 5 Chaos Emeralds to see a special background during the credits,featuring Sonic and the Emeralds you found! (Only Sonic can get the Chaos Emeralds).
At the Sound Test screen, press down, down/right, right, 1 or 2 . Sonic will throw a fireball