Can be equipped in your off-hand slot, the torch will shed some light on your surroundings. The torch can not be used as a weapon, and dual-wield abilities like Lacerate can not be used while having a torch equipped.
Source: picked up from a bundle of torches on the ground in the Eldevin Sewers level 2.
During stage 4 of the quest  Cleansing the Sewers you have to have a torch in your inventory in order to burn the dead plagued creatures.
During stage 9 of the quest  Attacks from the East you have to have a torch in your inventory in order to light the Ship Cannons.