Step 5: We Have Light!
This works for the same reason a candle does. As the butter melts, it's wicked up into the toilet paper stem and vaporized by the heat. The vapor is flammable, and it's acting as the fuel for the flame.
These butter candles burned for 4 hours each, giving a total of 8 hours of heat and light from the original bar.
Note: After a couple of hours, the butter warms up to the point where it melts and the wick may fall over. In this case, it's useful to take a paperclip and make a support for the wick. To do this from the beginning, just insert the wick and paperclip together from the bottom of the butter block.
Dropping the candles down into something like a glass can help protect them from drafts, and reduce the risk of your candle becoming a fire hazard. You also have the added benefit of an interesting DIY ambiance to your room.