Use of tmp folder in drupal
Your temporary directory holds files before they actually move to the appropriate position in your files directory. 

Not sure but I think one the example can be the time we upload a file in a content type it first goes to tmp directory before you actually save the node. Also you might have image cache working if file type is image so the file must exist on server before it crops or scale, so tmp is that directory.

Also the tmp folder is always need to be in drupal root directory, the place is configurable from settings.