Plumber's putty seals the parts to prevent leaks. A common location for leaks, and thus putty, is around toilets and drains. Putty also helps seal the drains for sinks and tubs.
When should you not use plumbers putty?
Do not use plumber's putty where you need adhesive strength (to bond materials or prevent them from moving) or where you need a watertight seal in exposed areas.
Is it better to use silicone or plumbers putty?
Both plumber's putty and silicone are sealing compounds designed to provide a water tight fit for pop up drains, sink strainers, undersides of fittings, showers and drains. Plumber's putty is more traditional while silicone caulking is a more modern product, but either one (in most cases) can get the job done.