Circe is a powerful sorceress who lives on an island in a decadent mansion surrounded by animals. Odysseus and his men arrive on her island on their way home to Ithaca with only one ship left. They've experienced hardship throughout their journey and have just left the island of Lamos, home of the Laestrygonians, a group of dangerous giants who destroyed the other eleven ships in Odysseus's fleet by throwing rocks at them from high cliffs (they also ate many of Odysseus's men). This is what left Odysseus with only one ship when he arrived at Circe's island.

Odysseus sends an exploratory party out to survey the island. The group is led by one of his crew members, Eurylochus. Circe lures this group into her home with her beauty and her promises of a delicious meal. Only Eurylochus stays back, wary of her promises. The rest of the men are immediately turned into pigs through her powerful magic, and Eurylochus returns to their ship to warn Odysseus and the rest of his crew about her powers.

Odysseus receives word from the messenger god Hermes that he must resist Circe's magic by eating a magical herb called moly. This allows him to withstand her magic when he enters her home to get his men back. Because of his cunning and his ability to resist her powerful magic, Circe immediately knows he is the man named Odysseus. He goes to bed with Circe after requiring that she pledge loyalty to him and return his men back to human form. He stays on her island for a year (with his men, too), which is important because it stretches out the time it takes Odysseus to get home. Since The Odyssey is a story about Odysseus's homecoming, his decision to stay with Circe for so long is important and says a lot about her powers of seduction.

Circe is also incredibly important because of the information she gives to Odysseus in a prophecy when he informs her that he will leave her island to continue his journey home to Ithaca. She warns him about a dangerous area of the ocean that he must pass through with two dangerous monsters in it: Scylla, a terrible creature with six heads and twelve feet, and Charybdis, a vicious whirlpool that no ship can navigate over or around.

Circe also tells Odysseus that before heading home, he must bring his fleet down into the Underworld to meet with a prophet named Tiresias. She gives him special instructions about how he must sacrifice animals and perform a very specific ritual to appease the souls and gods of the Underworld. No man ever returned alive from a visit to the Underworld until Odysseus, so Circe's wisdom and her magical powers are incredibly significant to Odysseus's journey home.

Circe is important because she is the one who tells Odysseus where he must go in order to reach home.  Without her help, he would not know how to get home.  She is also important because she is a witch/goddess and Odysseus is able to "defeat" her powers (with the help of the god Hermes).  It shows how blessed he is with the gods' help and it shows the strength of his overall character.  He is the hero of the epic, and this book proves his physical and mental powers.

The reason there is only one ship left is because of the Laestrygonians.  He landed there before he made it to Circe's island.  They were giant cannibals who killed all of Odysseus' men and destroyed their ships except for his own crew and ship.