What’s the effect of blowing candles

Violent solutions to problems and a high body count increase the level of Chaos in the city.

When the city is a violent chaotic place, people react accordingly. There are more guards and more traps. There are more rats to take advantage of the abundance of food. Essentially, if you signal to the game that a fight is what you're after, then a fight is what you'll get. The final mission, in particular, is dramatically altered by the level of chaos you've engendered or avoided up to that point.

Additionally, Dishonored has several endings, and chaos is the primary determinant of which of these you'll see.

There are multiple ways to play Dishonored, if you are playing by killing and still remaining hidden shadow kill is a useful skill as you don't have to take care of the bodies which can tip off enemies.

As to your second question, a body being found also produces chaos in addition to that of killing.