If you're doing a thorough tune-up, you'll want to check the engine timing. A timing light does this by shooting a strobe light aimed at your car's specific timing marks. The strobe flashes at the same time your #1 cylinder fires, which should mean that the timing mark (usually a line or notch on the flywheel) is lined up perfectly. If everything is timed correctly, you'll see a flashing notch down there. If not, you can adjust the timing until you do.
Fancy timing lights will allow you to set the timing a little ahead or a little behind the mark by exact increments. When it's dead on, the timing is referred to as TDC (Top Dead Center). If you want the timing a little ahead, you will "advance" the timing by a specific number of degrees, which is adjustable on the top of the light. If you want it a little behind, it's called "retarding" the timing. Some cars specify a number of degrees of advance.
Check out a picture of a timing light.
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