So, on their own, light infantry are there to do a little bit of damage possibly before dying, hopefully in good defensive terrain.
But in most scenarios the cavalry/muskets are together in the described integrated formations. It slows the cavalry down to 6. What does it do to help the cavalry? I don't think I have been using them to their fullest. As far as I can tell they are good for helping to increase the reaction fire damage that the light cav can do--it's like a second shot from pistols usually with no ammo limit. They don't help in CC. I don't think they can fire in reaction to interceptions (IIRC, the rules specifically say that only the interceptee can fire pistols when a interceptor charges?) They slow down the cav. What else are they good for? It's foolish to have cav fight like infantry and advance into combat firing anyway (CC and momentum being the primary use of cav) and the light infantry can't fire when the cav charge into close combat since only cav can fire on the move and that breaks momentum anyway. I guess I'm just confused.
Anybody want to describe what they use them for? I may be missing some important rules or something?
You have described their purpose, to supplement the defensive firepower of the cavalry squadron. It was a controversial tactic as you can see, it was not used by all in the series. The Swedes used it as the Imperial squadrons were larger and the increased defensive firepower and slower charges of the imperials (reflected in their lower morale ratings) were beneficial. Their idea was to accept the Imperial attack then launch a counter attack once the Imperial cavalry were broken by firepower.
For example the typical Swedish regiment is a 3-7 and the typical Imperial is a 4-6. When the Imperial regiment charges it has a couple options - it can go for momentum and the morale will offset that to a +1. Or he can fire with a +1, and if he hits he gets a size bonus of +1 to offset the morale. The hit is permanent, whereas morale and formation are recoverable. The 4-6 is very vulnerable to defensive fire as he will immediately go into his casualty threshold with a single hit.