You can find the touch type tool in the Illustrator tool box below the various type tools. Once you have selected, there is no hidden functionality in the tool icon itself
It was created (I presume) for the touch screen so you click with your finger or mouse and select a character. It works on one character at time. Once you have selected that character and you can select other characters in turn to manipulate. The tool is not magical and it is bound to the characters panel so it is always great to open the character panel as well - you will see that you hit walls in the settings but often they can be changed by moving or re-sizing a different character You can re-size and rotate and move the individual characters
You will see a bounding box, you can select the bounding box and move the character. You can select the diagonal corners and re-size the character. You can select the little dot right above the character and rotate the design as well. Bottom left point is for moving the design. Bottom right stretches the character. Top right scales and likewise top left. Moving the character does mean the other characters are 'shoved' out of the way though you can get overlap, sometimes the tool just seems to bounce characters around. It is not the ultimate tool for manipulating characters in all kinds of ways, if you wish to do that you will need to expand and ungroup the characters and then manipulate it but it will no longer be live.
You can also, while the character is selected, re-color the character. You can select each character in turn and re-color them You can also use the swatches panel to recolor them all
With the character selected, you can also go to the opacity and change the transparency and blending mode for that character
With the selected character, you can also add a stroke as well as dashed properties and more. Unfortunately the appearance panel does not allow for additional fills and strokes etc and nor can you add a graphic style to a particular character
Simply click on another character. Sometimes it is hard to select a particular character and you may need to move another character out of the way or re-size before you can work on another, I have had that a number of times with this tool. You can move the characters up and down, overlapping but again all within the limits of the standard character type panel and leading, scale, rotation, font size etc
You can also go to the character panel and change the font for the character as well as along the top bar
With the character selected, you can also change things by using the standard character panel. The functionality of the tool itself never breaks any of the settings in the panel and any updates are reflected in the baseline etc settings.
Select an object using the tool and then go to the glyphs panel and double click the glyph you want to replace it with. Especially useful if you notice that you have made a spelling mistake and want to correct one or two of the objects. The rotation and scaling will not be changed etc.
You can drag the artwork into the CC libraries panel and then use the object in Photoshop, After Effects etc, though it will no longer be a live set for those applications as they do not feature the same tool. It will be listed as a text object. It can still be edited if dragged back to the art board though.
You can re-size the entire object by using the standard tools such as scaling, rotate etc via the bounding box. You can also duplicate the object by holding down the alt / option key and dragging. You can also use it with all the standard effects as well so you can add a Gaussian blur though it should be noted that it works on the entire set and not the individual.
You can select the group and then use the object menu and repeat and radial (or grid etc). You can then manipulate the radial radius and instances. You can double click on the instance (any of them) and then edit the design. You can re-size the artwork, rotate etc within the repeat object. You can also use the tool on the individual characters and they are still live and can be edited. You can exit the isolation mode via the top left controls (of the application). You can change the color, font, etc as before
You can at any point return it to normal paths by going to the object menu and expand. If you have a complex object you may have to expand multiple times (there is no super 'expand' button)