1. How can we use Auth Tokens in LAC?
2. will these tokens be used by the application which is consuming the APIs created in LAC?
An auth token is used to authenticate the REST calls. See: Auth Tokens - CA Live API Creator - 3.2 - CA Technologies Documentation
To call APIs, you need to call the @authentication endpoint to get the auth token. See the Invoking APIs page - Invoking APIs - CA Live API Creator - 3.2 - CA Technologies Documentation.
Hope this helps!