How do I ignite my torch?

If you visit a bonfire or a lit torch in the environment, you use the action button (A on Xbox 360, X on PS3, Enter or Shift+Click by default on PC) to pull out your torch and light it. At a bonfire, you may need to press the "toggle" button (Y on Xbox 360, △ on PS3, N by default on PC) to show the button prompt to light your torch.

When you light your torch, you'll automatically hold it in your left hand, and it will stay lit until you put it away (by switching your left-hand item to something else). If you want to use it again after you've put it away, you'll need to find a bonfire or torch in the environment to light it again.

There is also a consumable item called Flame Butterfly that will allow you to light your torch anywhere by using the item from your inventory.

(And don't feel bad, it took me a couple hours to figure that one out, too.)