Rosencrantz and Guildenstern find Hamlet. They ask where Polonius's body is. Hamlet responds in riddles and insults—he calls Rosencrantz a "sponge" soaking up the king's favor. Hamlet agrees to see Claudius, but then dashes off.
By calling R a "sponge," Hamlet implies that through their foolishness R & G have been taken over by Claudius. They have lost their inner reality.