An MLB player on the Suspended List counts against both his club's Active List (25-man roster) and Reserve List (40-man roster), while a minor league player on the Suspended List counts against his club's Reserve List but does not count against his club's Active List. (A player on an MLB 40-man roster who is placed on the Suspended List while on Optional Assignment to the minors does not count against his club's MLB 25-man roster or the minor league club's Active List).
A player on the Suspended List continues to accrue service time.
The main instance where it is used is when a player is suspended by the league as the result of an on-field incident, but it can also be initiated by the player's own club in the case of unacceptable behavior (such as a player getting into an altercation with his manager, a teammate, or a fan), or a violation of team rules related to chronic tardiness, possession of alcohol or reporting to work intoxicated, missing a doctor's appointment, et al. The Suspended List is used more liberally in the minor leagues, mainly because minor league players don't have the protection of a union.
NOTE: When an MLB player is placed on the Suspended List, a grievance is usually filed by the Major League Baseball Players Association (MLBPA) on behalf of the suspended player because the player does not get paid while on the list.