The Hand of Evil takes the place of your mouse cursor, and it is how you interact with the world.
You can pick up your creatures no matter where they are, and any gold within your territory. Creatures in your hand are safe from attack. You can drop off your creatures within your territory, and gold within your Treasure Room (or give it to an unhappy creature). You can also pick up Chickens to feed creatures and save them a trip to the Hatchery, but don't let them take advantage.
Picking up creatures and dropping them in a room such as a Training Room, will assign the creature to work in that room. Dropping Imps near work such as mining or claiming will set them that task. Dropping creatures near intruders will make them battle. As you cannot drop creatures in enemy territory, you will have to steal their territory, possess creatures or cast Call to Arms.
Your Hand of Evil can also slap creatures, to make them work faster. Imps are used to harsh treatment, but slapping regular creatures too often will make them unhappy. Excessive slapping will reduce health.
In Dungeon Keeper 1, you cannot hold more than 8 creatures (or objects such as Gold or Chickens) at a time. In Dungeon Keeper 2, the limit is 64.