Light sources don't do much, really. When switched on in very dark places like the Catacombs, they enable you to see how many enemies share tile with you, when there are more than 1 of a particular type of enemies on on the tile. For example, without turning on a light source, you will only see "some Subterranean Rats" instead of "2 Subterranean Rats". You will still be able to tell if there are 0 or 1 NPCs in the tile.

Additionally, if you battle in such very dark places without switching on a light source, your to-hit % will decrease by 20%. For example, if you fight a Bat in the Catacombs with a Battle Axe, without turning on a light source, your chances of hitting the Bat wil decrease from 35% to just 15%, assuming that you do not have any of the Bladed Weapon Skills.

Also, attempting to hide while a light source is switched on displays the text: It is impossible to hide with a light source.
If you turn it on while hiding, your hiding status will be removed.

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