Oh boy a question I can answer.
A fuge or Refugiums can be used for several things. It is a seperate tank from your display tank. water is passed from the display tank into the fuge and then sent back up to the display tank. It is often part of a sump.
Commonly it used to house plants for the purposes of filtration the plants pull nutrients out of the water that would otherwise cause bad algies and other stuff. In other words the plants use the nutrients that the algies would have needed to grow.
A deep sand bed (4-6") is also good for natural filtration of a tank. Many people do not want to have a bed of sand this deep in their display tank as it does not look good, so using a refuge they can have a deep sand bed and then only have a sand bed of 1 or 2 inches in their display.
A refuge is also a good place to do water changes and stuff. This way you do not have to disturb the inhabitants of your display tank. It also a nice place to put heaters and other things that might not be so sightly in the main tank.
Finally, a refuge is a good place for pod production!
Of course you might want to wait for a more experienced answer to make sure I have explained it properly!