Using the rod shape shifts the party into either monsters or civilian NPCs temporarily. Changing into a monster allows the party to speak with other monsters in the vincinity and thus avoid battles. This is needed to attend Psaro's meeting in which it is revealed that Estark has awaken below Mamon and thus progresses the story. Changing into NPCs has no effect whatsoever and monsters will still attack the party. And if the party tries to interact with human NPCs in monster form, most of them will not do business nor interact with them.