A demon torch is a Demon on a stick. It is created by shift-right-clicking a torch with a demon. The demon's anger level is irrelevant.
The demon cannot be separated from the torch again.
If a demon torch is placed on a chest, it will suck up items from the surrounding 7x7x7 area and place them in the chest. This is useful for automating certain processes.
In Minecraft Alpha 1.1.2_01, you cannot shift-click to place blocks on chests. To place a torch on a chest, you must place a non-solid block (such as another torch) next to where you want the torch to go, then right-click on that block. The torch will realise it can't be placed where you wanted it, and it will attach itself to another block which it can be attached to, such as the chest.