As originally understood, an indulgence was a mitigation of the severe canonical penances imposed on the faithful for grave sins. The term "indulgence" remained, however, even after these extreme penalties were discontinued. Yet until the Second Vatican Council, the norm for determining the effectiveness of an indulgenced practice was its relationship to the ancient canonical penances, as seen in the numbers, so many years or so many days, attached to every official listing of partial indulgences.
All this changed by Pope Paul VI. From now on the measure of how efficacious an indulgenced work is depends on two things: The supernatural charity with which the indulgenced task is done, and the perfection of the task itself.
Another innovation is that partial and plenary indulgences can always be applied to the dead by way of suffrage, asking God to remit their sufferings if they are still in purgatory.
- from CatholicCulture.or
The concept of the indulgence has often been a confusing and sometimes controversial idea. In essence, an indulgence can be understood as doing something good or holy on earth as a way to atone for our sins. The reason this is necessary is that, even though our sins are forgiven in the sacrament of Reconciliation, there are still consequences for the sins we have committed. You can think of it like the residue that is left after a sticker has been removed. Although the sticker is gone there is still that little bit left on the object that you must work at to remove. Normally, we cannot fully atone for these sins until after we die and are in Purgatory. However, through the gift of indulgences, we are able to begin the process here on earth, or even offer up our indulgences for those who are already in Purgatory. In this way, an indulgence becomes a beautiful act of mercy for the benefit of others. It is important to note that, contrary to what you may hear, indulgences cannot be purchased. Rather, indulgences must be earned through pious actions and usually must be accompanied by reception of the sacraments of Reconciliation and Eucharist.