Why wax? Well for various reasons. It can help when dubbing. Certain wet fly patterns call for a waxed silk thread.
But I personally use it mostly to help hold things together. It can help to wax the thread when tying flies in hand (without a vise) – the wax can keep things from unraveling on you to a degree. Mostly I like it as an alternative to head cement. I find that waxing the thread prior to a whip finish adds just a bit more durability when I don’t feel like messing with head cement.
How to use it? Well you can use as is – or heat it up a bit in some hot water. Or you can prepare it in advance as Davie McPhail does by making it into chips.