From the official site
Back before light sources became more portable, reliable, and resuable, flares were the standard for lighting up the interior of dark tombs. Lara's favourites were always single use stronium nitrate flares with a plastic wind resistant cap for easy lighting.
They are used in the middle of the Peru level while Lara is having a flashback in Tomb Raider Legend. It is thrown like frag grenade in Legend, press the thrown key to throw flare forward while hold the key will make Lara throw the flare farther away.
Lara will have infinite amount of flares in the game, but only two flares can stay lit at the same time.