Candles can be a very useful light source in Phasmophobia. You can often find Candles in the locations you investigate. These work the same way as the ones you can buy and bring along as equipment.
Using Candles in Phasmophobia is quite simple. You can light them with a lighter if they are on the ground or a table. If they are in your hand, just press F (default key) with a light in your inventory and it will light the candle.
Candles can be placed on surfaces and on the floor, and will provide light that will help you see and keep your sanity from dropping too quickly. As a hand-held light source, they do better at protecting your sanity than any flashlight and shine a short distance in all directions. The biggest downside to them is that they don't flash during a hunt like flashlights.