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It's a mood light that's all. Just to throw a little extra light in the cabin. There was a huge thread a few months back in the general forum about how to change it to different, brighter colors too.
It didn't last long. I've forgotten exactly when they took it out, but I think it was somewhere about 2007 or 2008. Not sure whether my 08's got one or not.
EDIT: I just looked up some old threads on the subject and they just say it was discontinued in mid-2008 model year. My 08 was built in January, 2008 and I'm pretty sure mine doesn't have it.
I loved the 'mood lighting' in my C4 LT1 and I love it in my C6 as well. But I must admit that up until just this moment, going back 5-6 years now, I had NO IDEA where the source of that light that I love so much was actually coming from LOL.