I agree the use of torches is a janky and obtuse. What I did find is that candles have a "use" function on them and not encumbering. While they have low light range on them individually, you "can" use it to light other things. Drop it on the ground, use it to turn it on, then light the torch in your hand, and pick up the candle again to keep it with you.
Kind of treat the candle as a tinder box if you want to think of it that way, just a lot of extra steps.
And yes, you can dip your weapons into the candle to add fire damage or burn flammable surfaces.