The Chain Lantern is an item that cannot be crafted and can only be obtained from inside a Dungeon. You can collect them with a Hammer and put them in your house to illuminate the area. They offer a normal amount of illumination. It may be used with the wire system.
When put into your home and used with wires, it stays lit even when appearing unlit. Mostly on multiplayer servers. This appears to happen only when the wire passes through the bulb section of the sprite.You can fix the lit lantern wiring it again in single player, saving the world and when you start the world in multiplayer, the lanterns will not stay lit when they aren't supposed to.