"A warm, soft, shadow-like effigy.
Use this item to reverse Hollowing.
It also weakens the links to other worlds,
preventing invasions and most cooperation.
Peer closely at an effigy, and one begins
to perceive a human form, but whose form
it takes depends on the person looking."
The most important aspect of the Effigy is that it counteracts signs of the Curse, and returns the user to human form. It reminds one of their purpose, thereby restoring their will to go on, and drawing one back from being Hollow.
The item is also required by Darkdiver Grandahl to open portals to the Abyss.