Incense is an items that will increase the rate in which you find new Pokemon. For example, you may find that you come across one Pokémon every 500 meters. By using incense you will increase this so that you will come across them without having to travel as far. You will get a few of these at the start of the game. It is best not to use these too early on in the game. Rare Pokémon will spawn when you get to be a higher level, so it is best to wait until you are a higher level before using up the incense to capture new Pokémon.