Raw simply returns any requested file, so you can link directly to a file itself (i.e. without any of NextCloud’s interface around it). This enables you to host static web pages, images or other files, for example to link/embed them elsewhere on the web.
For security and privacy, the content is served with a Content-Security-Policy header. This header instructs browsers to not load any remote content, nor execute any scripts that it may contain (of course, the downside is that your web pages cannot use javascript for interactivity).
The common usage is to first share a file and enable public access through a link. If the share link
is https://my-nextcloud/s/aBc123DeF456xyZ, then this app will provide access to the raw file at
https://my-nextcloud/apps/raw/s/aBc123DeF456xyZ.
Private files are also hosted by this app, but of course only to users that are logged in and
have permission to read them. For example, a file named test.html in the Documents folder would be
available at https://my-nextcloud/apps/raw/files/Documents/test.html.