The glowing fungus is a quest item used in the Haunted Mine quest. It is obtained by picking the glowing fungus on the ground on level 4 of Abandoned Mine. When the players pick them, they receive a glowing fungus in their backpack and deplete it. It may respawn immediately after the players pick it. It is used to light the way in the level 6 of the Abandoned Mine where fire-based light sources are extinguished and tinderboxes become damp tinderboxes when a player is dropped into a small pool, hence why a glowing fungus is needed.
Being used to growing in a very dark cave, the fungus is very susceptible to sunlight and will crumble to ashes if taken out of the confines of the mine. It crumbles when dropped, too. Unfortunately, it is impossible to place it back in the cart for safekeeping (the adventurer will remark that "I just went to all the effort of sending this over here. I'm not sending it back."), meaning another fungus must be obtained in order to visit the level 6 again later. While required to enter the bottom levels, they can be dropped once inside with no ill effect.
Outside of the quest, the primary use of glowing fungus is to repeatedly pick and drop them to generate ashes. The Underworld Grimoire is very useful as it automatically banks any ashes picked up.
It is actually possible to take the glowing fungus out of the Abandoned Mine without destroying it. If a player has a fungus in their backpack (while in the mine), and their membership expires, they will appear in Lumbridge with the fungus in the backpack as a members object. There are other various ways to do this too, such as using legendary pets.