Out of all the things that the Catholic Church teaches, indulgences are possibly the most misunderstood. I think it is safe to say that statement would include most Catholics. If you are one of those Catholics, it doesn't have to be that way. First things first...definitions.
An indulgence is a remission before God of the temporal punishment due to sins whose guilt has already been forgiven, which the faithful Christian who is duly disposed gains under certain prescribed conditions through the action of the Church which, as the minister of redemption, dispenses and applies with authority the treasury of the satisfactions of Christ and the saints.1
To facilitate explanation, it may be well to state what an indulgence is not. It is not a permission to commit sin, nor a pardon of future sin; neither could be granted by any power. It is not the forgiveness of the guilt of sin; it supposes that the sin has already been forgiven. It is not an exemption from any law or duty, and much less from the obligation consequent on certain kinds of sin, e.g., restitution; on the contrary, it means a more complete payment of the debt which the sinner owes to God. It does not confer immunity from temptation or remove the possibility of subsequent lapses into sin. Least of all is an indulgence the purchase of a pardon which secures the buyer's salvation or releases the soul of another from Purgatory. The absurdity of such notions must be obvious to any one who forms a correct idea of what the Catholic Church really teaches on this subject...2So where is the definition of the definitions? If there are some words in there that you are not very familiar with, do not worry, we will get to them. To properly understand what the Church teaches about indulgences we only need to understand a few simple concepts.
The Two Consequences of SinGrave, or mortal, sin has two consequences; the first, which is called eternal punishment, and the second, which is called temporal punishment. The eternal punishment of sin is hell or an eternal deprivation of communion with our Creator. Eternal punishment is only a consequence of mortal sin. It is not a consequence of venial sin. "Mortal sin is sin whose object is grave matter and which is also committed with full knowledge and deliberate consent."3 In other words it is a serious matter, you know it, and you freely choose to do it anyway. A sin is venial when at least one of the three conditions for mortal sin are missing. Temporal punishment is a consequence of both mortal and venial sin. Temporal punishment is a consequence that takes place in time. It is not eternal in nature, hence the name.
The Tale of Two BrothersAt this point an example might make things clearer. You and your brother like to play catch after school and every day you come home and go outside and throw the ball back and forth. You do it outside because your parents have told you that you are not allowed to do it inside. This particular day it is raining outside and instead of doing something else you decide to throw the ball around inside the house and end up breaking a window. In true sorrow and repentance you both confess to your parents what you have done when they come home and they forgive your disobedience towards them. Just as your parents have restored you and your brother to your previous place in the family, so does God restore us when we repent of our sins in true sorrow and confession. The theological term for this is justification. The normative way that man is justified by God is in baptism. If following baptism man separates himself from God through mortal sin he can be re-justified by God in in reconciliation. Justification is not what is going on with indulgences. When we are made just (or justified) our eternal punishment, that eternal separation from God, has been removed.
There are some people who would say that everything is good now. You are just in the eyes of God and if you were to die you would go to heaven. Well, almost. You might notice that it is still a bit breezy in here. There are some other things that resulted from your little foray into disobedience. The most obvious is that the window is still broken. That is an example of the temporal consequences of our sin. There are many other temporal consequences that might not be so obvious. There is the bad example we have set for our younger brother who we convinced to join us in the disobedience of our parents. There is the resultant lack of trust that our parents will have in us when we are home without them there to supervise us. There is the predisposition to commit this sin again because the more we indulge in disobedience the more likely it is to become a habit, etc., etc. The list goes on and on. As you can see our sins affect us and others in many different ways. These are just some of the ways that we can readily think of. Imagine the ones that we have no idea are going on.
The Treasury of Merit and the Keys to the KingdomLet's say the window is going to cost $100 to fix. You do not have any money because the unemployment rate for 12 year olds is pretty high. Since you do not have a job and it has been quite awhile since you spent the last of your birthday money, you are in quite the pickle. Although you desire to fix the window, you have not covered that in shop class yet and your piggy bank is completely empty. What is a boy to do? You ask your parents for help of course. They tell you that they recognize your desire to repair the window and would like to help you and your brother earn enough to fix it. They tell you that you can mow the lawn and earn $10 towards fixing the window. You could also help dad this Saturday rip out the old deck and install a new one to pay off the whole $100.
It is the same way with us when we sin. The Church, thanks to the infinite merit of Jesus Christ, has a vast, limitless treasury of merit that she has access to. Because our Lord granted Saint Peter (and his successors) the keys to the kingdom and the powers to bind and loose, the Church is able to give us ways to make satisfaction for our temporal debts. Even when we are forgiven of the eternal punishment due to our mortal sin by God's grace and through repentance, contrition, and confession, we still have the temporal consequences of it to deal with. The Church, through her access to Christ's infinite merit, attaches an indulgence to a particular pious act. In this way the penitent can really pay for the temporal consequences which he may have no earthly way of perceiving or simply cannot repair. The Church offers us two different kinds of indulgences. They are either partial (as in the $10 example above) or plenary (as in the $100 example).
Just as we can benefit from receiving from this treasury of merit, we can also contribute to it. As Christians united to Jesus Christ, acting in and by his grace, our good works, penances, and sufferings are also added to this treasury. Although the treasury is already infinite our additions are real because they are acquired through the merits of Jesus Christ.
The benefits of an indulgence may also be applied to those who are in Purgatory. Continuing the previous example, if the younger brother were to have died without having made restitution, the older brother could mow the lawn and use those benefits, the $10, to pay his brother's part of the debt.
Indulgences are consistent with both God's mercy and his justice, because he allows us to unite ourselves to him through Jesus Christ whose satisfaction to the Father more than fulfills the indebtedness man has caused by his sin. Indulgences are a wonderful gift to every Christian. We will be called to account for all the temporal consequences of our sin, in this life or in the next. As Saint Augustine tells us:
But temporal punishments are suffered by some in this life only, by others after death, by others both now and then; but all of them before that last and strictest judgment. But of those who suffer temporal punishments after death, all are not doomed to those everlasting pains which are to follow that judgment; for to some, as we have already said, what is not remitted in this world is remitted in the next, that is, they are not punished with the eternal punishment of the world to come.4
- Myths about Indulgences - Catholic Answers
- Primer on Indulgences - Catholic Answers
- Catechism of the Catholic Church on Indulgences (1471-1479)
- Indulgences in Canon Law (1983 CIC 992-997)
- Apostolic Constitution Indulgentiarum Doctrina - Pope Paul VI (1/1/67)
 Catechism of the Catholic Church ¶1471 ^
 Indulgences - The Catholic Encyclopedia <http://www.newadvent.org/cathen/07783a.htm> ^
 Apostolic Exhortation Reconciliatio et paenitentia (17 § 12) - Pope John Paul II ^
 Saint Augustine, City of God - Book 21, Chapter 13 ^