Yes, that”s right, Koko is playing with a hand-puppet version of the famous “Lamb Chop,” which was given to her a a present by the late, great Shari Lewis.
The following description of Lamb Chop on Wikipedia may explain why Koko likes her so much:
Lamb Chop has been described as a “6-year-old girl, very intuitive and very feisty, a combination of obstinacy and vulnerability…you know how they say fools rush in where wise men fear to go? Well, Lamb Chop would rush in, then scream for help.”
Koko loves to play with puppets – as much as dolls – thereby enlarging her circle of friends via the power of her own imagination. Makes us feel young again just watching her.