The edited information below is taken from: http://dawson.nu/indian-pipes.html who had taken it from Hedgemaids and Fairy Candles, a 1993 book by Jack Sanders.

The Indian pipe is not a fungus, as its appearance would at first suggest. The Indian pipe is a flowering plant related to the dogwood, evergreen laurel, and rhododendron.

The plant's tiny clan harbors only four species. Only it and pinesap are found in North America; another is native to Japan and the Himalayas (where our own Indian pipe may also be found). Another species, called bird's nest, is found in Britain and Europe.

The Indian pipe is a saprophyte, living chiefly on the decaying roots of other plants, particularly trees.

Indian pipes are most often found near dead stumps in deep woods. Some botanists believe that the roots work in symbiotic conjunction with certain soil fungi to supplement its diet with food from live tree roots, which would make the plant a parasite as well as a saprophyte.

The Indian pipe's flesh turns black when cut or even bruised. It also oozes a clear, gelatinous substance when picked or wounded. Such unattractive characteristics have earned the Indian pipe some unflattering names, like ghost flower and corpse plant.

Indians employed it as an eye lotion -- whence the name, eyebright -- as well as for colds and fevers. Americans of the last century treated spasms, fainting spells, and nervous conditions with it -- thus the names convulsionroot, fitroot, and convulsionweed.

More information can be found at:

http://ncnatural.com/wildflwr/indnpipe.html

..."Indian Pipe root has been traditionally used as a sedative and for various nervous conditions. It was also used externally for inflamed eyes and bunions and warts. Water extracts are bactericidal. WARNING- Safety is undetermined and it is possibly toxic as it contains several glycosides."

http://www.conservation.state.mo.us/conmag/1995/sep/low.html

..."Like other uncommonly beautiful wildflowers, Indian pipes should be left in place so they can continue to grow and delight other outdoor enthusiasts."