What does the old starship do?

It seems (according to this site) that:

As you're wandering the map you will eventually come across a W. This is the landing spot of An Old Starship, which you ultimately have to fix up. Its hull needs work and its engines need upgrading; both require Alien Alloy. As you've probably discovered, Alien Alloy is quite rare…

… but, ultimately, worth it. A Dark Room's final challenge hinges upon worthy engines and a strong hull. Add a point to Engines and your ship's responsiveness will improve. Add a point to Hull and you'll be allowed another hit. Another hit in what sense, you ask? Simple enough…

… you're headed into space.

Once you take off you'll wind up in a fast-paced space sequence, soaring through what appears to be an asteroid belt. You need to dodge and weave through increasing numbers of space rocks and blast out into space. How much time you spend pumping points into Engines and Hull is up to you, but at least five points in each is recommended, if not more. It costs a lot to purchase Alien Alloy you don't find, so if you do come across any in the field, make bringing it back to your village a first priority.

Weave through the asteroids successfully and you'll complete the game… and loop back to the beginning. No rest for the weary.

So no, you won't die. You actually get something good out of it.

It sends you into space, where you have to dodge debris to get to higher levels of the atmosphere, then escape the planet. Hitting too much debris will put you back on Earth and you lose all the alien alloy you've invested in it. After escaping, it resets your game, so in a way you do die.

If you die while in space you will go back to the village and not lose anything. For example, if you had the hull to 7 and the engine to 6, and then you died in space, then when you go back to the village you will still have the hull to 7 and the engine to 6.

hope that helps.