It is directly used in a lot of chemical reactions in the body mostly as a cofactor for enzymatic reactions. That basically means it rides along on a carrier protein (enzyme) and donates electrons when needed for a chemical reaction to take place. If you didn't have any vit-c, you simply wouldn't have these essential reactions taking place in your body.
We know a lot about it, but there's also still a lot we don't know about vit-c. In some cases, we know what some of the observed effects are, but we don't know why or how it happens, specifically.
If you're interested in exploring it more, a good place to start is with the wikipedia article. ;)