The Lightning Rod is a structure that attracts lightning strikes. It helps to divert lighting bolts from hitting and igniting flammable objects such as plantations of Berry Bushes, Saplings, Grass Tufts and Trees. It will provide protection from lightning strikes for about two screens of surrounding area (40 units of distance, see the Console/Commands page for instructions on measuring distance or you can measure it with pitchfork which has 4x4 dig area).
The Lightning Rod also provides a small radius of light (but not heat) after absorbing a lightning bolt, which is just bright enough to survive at night. The light lasts for a few Days and will go dark as soon as morning comes. The Charged Lightning Rod makes a charging sound and animation every once in a while. It should be noted that in the Reign of Giants DLC, if you have a Lightning Rod and a Volt Goat in a close vicinity, they both have an equal chance of lightning striking them.