Besides providing light, they can also be used to ignite wall sconces, quickly burn away webs, or thrown to attack enemies at range. Hitting an enemy with a flaming torch will set them alight briefly, but this is a purely visual effect and does not cause additional damage.
Torches will be extinguished if they are submerged in water, and will no longer provide light. Extinguished torches can be rekindled by touching a burning wall sconce, but not by touching traps. Torches will also be extinguished upon finishing the level, essentially assuming the usefulness of an ordinary rock.
Tiki Men carry torches instead of Boomerangs in dark Jungle levels, and will throw them at the Spelunker if spotted, although this is less accurate than the Boomerang. They can serve as a useful replacement if you somehow lose your own torch.