In terms of multi-tracking & mixing, tone can be used to help "place" instruments in the mix sonically. When mixing multiple instruments on different tracks you can:
-make a track louder or quieter than the others.
-pan it left, right, or have it dead center, or as a stereo track, equally panned left & right.
-make it seem farther in the distance by adding reverb, or closer to the foreground by having little to no reverb.
But one thing that often gets missed in mixing is that you can also use EQ to place the instrument in a particular frequency range, the idea usually being to place it in a range that doesn't over-lap other instruments too much. This is why bass guitar and normal guitar complement each other so well. They could both be at relatively the same volume, and dead-center but you would still be able to distinguish the bass part from the guitar part easily.
Try listening to some music that you like, and pay attention to how EQ is being used to separate the instruments from each other. You'll notice that with good mixes, they cram a bunch of instruments all in the same frequency range, but instead place the instruments in their own little EQ space, so that each instrument can be distinguished clearly from the others.
Hope that helps a little!
