"Here is a step-by-step explanation of how to heel and toe: 1. Begin braking, using the ball of your right foot on the brake pedal while keeping a small portion of your foot covering the gas pedal-but not pushing it yet. 2. Depress the clutch pedal with your left foot, while maintaining braking. 3. Move the shift lever into the next-lower gear, while maintaining braking. 4. While continuing braking and with the clutch pedal depressed, pivot or roll your right foot at the ankle, quickly pushing or "blipping" the throttle(revving the engine). 5. Quickly ease out the clutch, while maintaining braking. 6. Place your left foot back on the dead pedal, while continuing braking now in the lower gear."
Basically, it avoids the car's balance form being upset by suddenly making the drive wheels turn a slower than they were before the downshift. It's not that noticeable on straights, but if you don't rev match in the corners, it can upset the balance of the car and depending on the car/driver, cause a crash.
Proud owner of an '88 Peugeot. http://i36.photobucket.com/albums/e14/frisco557/103_0809.jpg
If I take a turn too fast, I do the opposite and downshift in the middle and purposely upset the balance of the car and it usually jerks the front of the car towards the apex so that I can make the turn. It's risky and doesn't always work but it has saved me a bunch of times.
I trail-brake very heavily in this game, so to me it's very necessary. It's actually gotten to the point that if I don't do it it throws my rhythm off. But that's very rare, as it's just become second-nature to me.
The first thing I learned how to do in FM3 after using clutch was heel-toe. Now that I'm in FM4, I've gotten into the habit of letting off the throttle between shifts. Not because it's faster (FM3/4 doesn't recognize the sudden increase in revs as a problem), but because it just sounds cleaner.
1 Championship ('05), 2 Indy 500 victories ('05, '11), 16 career IRL victories R.I.P. Dan Wheldon. You will be missed.