This exercise is to strengthen the wrists for kake-uke, ko-uke and other techniques involving that part of the arm. It will also help to develop a suppleness and fluidity in the blocking motions during the kata Tensho.
The chiishi is swung in a figure-of-eight pattern, with the elbow kept down and tucked in as much as possible. It is not generally recommended to use a heavy chiishi for this in order to avoid damage to the wrist.