From the United States Conference of Catholic Bishops bulletin insert:
By its very nature, every sin inevitably causes suffering for the one who has committed it. Every sinful act creates disorder within the soul of the human person. Sin also disrupts one’s relationships with God, with the Church, with other people, and with the world as a whole. Those who have received forgiveness for their sins may still have an obligation to undergo a process of purification and to restore these disrupted relationships. The necessary and painful process that brings this reconciliation and purification can take place either in this life or in Purgatory, because whatever part of the process remains unfinished at death must be completed in Purgatory.
Through an indulgence, God grants that through the prayer of the Church the temporal penalty for sin due to someone be reduced (as in the case of a partial indulgence) or be eliminated (as in the case of a plenary indulgence). By God’s grace, participation in a prayer or action that has an indulgence attached to it brings about the necessary reconciliation without the suffering that would normally accompany it. The granting of an indulgence by the Church is “the expression of the Church’s full confidence of being heard by the Father when—in view of Christ’s merits and, by his gift, those of Our Lady and the saints—she asks him to mitigate or cancel the painful aspect of punishment by fostering its medicinal aspect through other channels of grace.”
How Can Indulgences Remove Some or All of the Temporal Punishment of Sin?
It is because of the Communion of Saints and the graciousness of God, our Father, that some or all of the temporal punishment for sin is removed. Although we always have to face the consequences of our sins in the form of the temporal punishment for sin, as members of the Body of Christ we are never simply on our own. We are linked with Christ and with the martyrs and saints, and we benefit from their holiness in such a way as to be freed from at least a portion of the temporal punishment for sin. “In this wonderful exchange, the holiness of one profits others, well beyond the harm that the sin of one could cause others.”
~ From USCCB ~ Indulgences and Our Spiritual Life
USCCB Manual of Indulgences Preview, (4th Edition, updated version) 1999
Norms for Indulgences (3rd Edition) 5/18/86
Catechism of the Catholic Church: Indulgences
Code of Canon Law (1983) on indulgences
Catholic Encyclopedia: Indulgences