The Lonely Planet guide refers to this structure as "disused water tower" and implies it was constructed by the Soviets. I am not entirely convinced it is correct though. I like to think of it as a giant's birdcage, open one so the birds can freely go in and out.
Apparently it was once possible to climb it and enjoy the views of Bukhara from the top. However, when I went there last October the entrance was surrounded with barbed wire.