The rod is among the loot when the party have succeeded in fighting the enemies in the Monster Allocation Center. When identified, it can be equipped an used by a caster of mage spells (Mage, Bishop, Samurai). Its effect is the Mahalito spell. It is certainly a nice item to have, though the spell is mainly useful in the maze's upper levels. Already for the fight in the center, the characters would need more powerful spells than Mahalito.
Still, the rod may be useful as a last resort when all spellpoints are used up. Also, it might serve a Samurai who is not yet able to cast the spell.
According to John Hubbard's Wizardry page, the rod also protects from fire.