The clay bar is used to remove contaminants in the paint (mostly from road driving such as brake dust/etc). If used properly with a lube such as a quick detailer it can work wonders. Just gently slide it across the paint surface and periodically refold the clay so you ensure you're working with fresh clay.
Here are a couple of pretty good articles on why and how to clay. http://www.bettercarcare.com/articles.php?articleId=14 http://www.properautocare.com/creatsmootpa.html My favorite kits would have to be Mothers Clay Bar Kit and Meguiars Quik Clay Kit.