It's used for re-moisturizing and preserving the guitar's fretboard. If you don't apply some type of fretboard oil (like lemon oil) every year or so, you'll notice the fretboard getting dried out.
Also, this oil isn't typically used to clean the fretboard, it's just used for moisturizing. You'll want to clean off your fretboard before applying the oil, which can be done using zippo lighter fluid (or Naphtha). Just put some zippo lighter fluid on a rag (avoid any sort of fuzzy rags, as this can lead to cloth fibers getting caught in the frets while cleaning), and clean the entire fretboard. Zippo lighter fluid will also dry out your neck even more, so make sure that you can apply oil to your fretboard shortly after. Also, since lighter fluid is flammable and has such a high evaporation rate, don't use it near any open flame and make sure you are it a well ventilated area.
Hope this helps!