Räucherkerzen are candles that produce a scented smoke. Commonly found scents are incense, pine, cinnamon and honey.
Coming originally from the Ore Mountains (Erzgebirge) they are often used as part of Christmas decorations, such as Räuchermännchen.
To hear a simple explanation and a short discussion in German, listen to the podcast:
(Press the “play” button to listen to the podcast)