Rare Candy allows you to evolve your pokemon. It's 2 main purposes are:
1) Evolving to a stage 2.
Say you have a Mudkip on your bench and a Swampert in your hand. Normally, you'd have to get marshtomp out first, and then evolve it to Swampert next turn. Thanks to Rare Candy, you can skip the middle evolution. Doesn't work on babies though.
2) Set and Evo
Normally you must wait 1 turn after you put a pokemon down to evolve it. Say you have a Yanma and Yanmega in your hand. You bench the Yanma, and then can rare candy it to Yanmega that turn.
Edit: I missed it too. One seck, i'll post the link.
http://pokebeach.com/forums/showthread.php?tid=11094