First off, dazzling your friends is one problem with a torch I've never seen considered. While the person carrying the torch can hold it over their head, and thus get full benefit of the light, anyone walking behind them will either a) have the torch in their field of view, and will be dazzled, or b) have to look at the ground.
Walking to either side of the torch-bearer would be fine. Being in front of the torch-bearer obviously means dealing with your own shadow.
As for what this means in gameplay terms, I would say anyone walking behind the torch-bearer is dazzled, and isn't getting full benefit from the torchlight. Say, halve the illuminated distance.
Probably won't come up too much, but something to think about.
There are a few important versions of the "torch" to consider.
Most familiar to people would be a stick with pitch-soaked fabric tied to the top with wire, so I won't talk any further about it.
Other versions include the splinter, rushlight, cresset/basket, candle/stick, bark/tinder, simple stick, and animal torches.
Of these, only the cresset/basket, candle/stick, and the bark/tinder torches are practical for mobile use - splinters and rushlights are for lighting a home or tent.
I touched on the cresset in a previous post - it consists of a hinged light source on a pole. This source can be a lamp, or it can be a basket of burning material. This is pretty self-explanatory, I think - tinder and small sticks (possibly soaked in pitch, resin, or fat) burn in an iron basket on the top of the cresset.
The obvious advantage of this is the ease of finding material for it - burning pitch-soaked cloth or wood would be best, but at a pinch you could just chop up some wood and toss it in. It's also probably a little easier to just have a sack of pitch-soaked pine and a single cresset than a bundle of bulky torches.
Candle torches consist of maybe 3 feet of heavy candle (4" across) on a
wooden handle. This seems a little odd to me, especially given the
historically high prices of candles, but there is historical evidence
These would, to my mind, be primarily a status item for wealthy people walking around in the town. As candle-wax could cost as much as 4 times as much as meat, this would be an exceedingly expensive torch.
Bark and tinder torches consist of a core of pitch-, resin-, or fat-soaked tinder wrapped in bark. This is a primitive but effective type of torch that can burn as long as 2 hours, 1 hour probably being typical. These are pretty bulky, being maybe 12" in diameter at the top, and 4" in diameter at the bottom, and maybe 3' long.
The advantage of this is the ease of preparation - this could be constructed with little effort anywhere you have access to pine trees (for the tinder and pitch), hardwood trees (for the bark), and a day or so to collect the materials and make the torches.
This is just a stick where the end has been smashed into splinters and soaked in pitch, resin, or similar.
Obvious advantage is simplicity and ease of manufacture, the disadvantage is that it's not as bright and doesn't last as long.
Certain animals (candlefish, storm petrel) have such a high fat proportion that there are accounts of people using them as torches. Simply catch one, stick a wick (made of moss, cotton, or similar) in its mouth, and strap the beast to a stick.
Not going to make much light, but could be cool for "barbaric" NPC's.
Wikipedia has an uncited entry claiming that the Romans made a torch with sulfur and lime that would not go out if submerged.
I'm sceptical, but it would probably be possible to make something like this, as quicklime does heat up considerably when wet.
Whether or not this is true or historically accurate, I think it might be interesting to be able to make waterproof torches.