Yes this is the female genitilia. The origin of this word comes from the 909 (also known as the I.E.) which is a section of Southern California.
"I might smoke weed with you, but i could never be with you, girl look at my face, i just love your squace, but you ugly as f***." - The Squace Song by Melo Kán feat. T-Tru.
The female genitalia.
Person 1: Didja hit the squace yet?
Person 2: Naw, man. Didn't hit the squace yet.
Person 1: You've blowin' it for sure.