Dhoop is lighted before the images of gods and goddesses during Hindu Puja ad worship. It is basically lighted to purify the air and spread fragrance. It is also believed that lighting Dhoop helps in warding of the evil spirits.
It is believed that when Gods arrive to participate in the puja, the paths through which they arrive are kept smelling sweet and fresh with Dhoops.
What is pleasing to human beings is presumed to be pleasing to the gods and therefore good smell of Dhoop is used in pujas.
It is also believed that the smoke of Dhoop is similar to the smoke of sacrifice or yajna and therefore it is offered to please the deities.