Touchstone takes on importance in As You Like It because his role, as devised by Shakespeare, is to bring out the true nature, values and thoughts of each character he speaks with. An example of this is his parodic conversation (conversation that parodies the other speaker) with Corin, the shepherd, which can be contrasted to his equally parodic conversation with Jaques.
When speaking with Corin, Corin's true heart and values are revealed and the audience/reader learns of Corin's sincerity and genuine feelings. When speaking with Jacques, Jaques' more urbane sentiments are revealed and his opinions laid open to examination.
Shakespeare uses Touchstone in the same role in which he uses his other "fools" (urban characters who serve the lead characters and entertain with wit that tells the truth and reveals significant information about the protagonists and other important characters) but with a variation: Touchstone keeps the play grounded in reality, preventing it from being lost in an idyllic pastoral celebration in Arden Forest.
Touchstone is the clever fool from the play. Using the technique of mimicry, he comes off to reveal the truth about the characters in the play. The process of revealing is not so tough because is made with the help of all those funny nonsenses.
Shakespeare named the character Touchstone, after the name of the tester used to discover the purity of precious metals, suggesting the reason of the Touchstone's presence in the play as the one who could find out the quality of the other characters.