@jonimake:
As far as I know light functions are only capable to change the intensity of a light source. They can’t actually change a surface properities e.g. let a surface appear less bright and more specular. Decals on the other hand are not depth aware, which means that they can’t be blocked my static meshes. This means you have to carefully place your decals e.g. on top of the roof of a hut so they don’t influence the floor.
These ‘effect’ lights have direct access to the g-buffer and can modulate the materials which they are cast on. And because they work similar to a lightsource they don’t affect the surfaces that are in the shadow of the ‘effect’ light. They offer a easy way to make the scene more dynamic and enable less manual work over decals or scene setup.
@lunyBunny:
I’m not sure, but in the implementation I linked they are used like normal light actors (directional, spot, point).