First it indicates when ever you enter the zone of detection by blinking.  This assists you in both determining the detection zone width at various distances, but also the maximum detect distance at that location (due to terrain, outdoor temps, etc).

Second, it tells the user, using the various modes (Day Only, Night Only, or 24hr), whether there is enough light (or if its dark enough (night only)) for the unit to trigger the camera.  In other words, say you setup the unit for day only mode in your favorite spot, however, it is very dense pines during the summer, and your setting the camera up after work in the evening.  It may be so shady that there is not enough light for the unit to work in that exact spot.  In this case, the light will not blink at all, telling you, you need a location with more light at that time of day!  The same is true for night only mode.  In 24 hour operation, of course no light test occurs.

Finally, the aiming light serves to tell you when the 2 C - Cell batteries operating the motion sensor are running low.  In aiming mode only, it will blink constantly (like a Christmas Light) telling you its about time to change the batteries.  In camera active mode, no indicator is present.  This battery indicator is designed to come on at approximately 3 months (or 3000 pictures) and the batteries typically go dead at approximately 4 months (or 4000 motion detects).