Torch is, supposedly, the name of the character around which Clutching At Straws centres. He's a writer suffering from writer's block who turns to alcohol in hopes of finding inspiration at the bottom of a bottle. He's also such a thinly veiled attempt by Fish at hiding behind a character rather than admitting that he is totally talking about himself that the whole thing would be absolutely laughable if it wasn't so sad. As if the public persona of "Fish" wasn't a character for Derek W. Dick to hide behind in itself. As if that wasn't the whole point of the image of the jester from all the pre-Misplaced Childhood artwork.
This song is the beginning of the quiet, reflective section towards the end of the night; we've got through the haze of drunken antics, the self-aggrandising and political posturing, and "Torch" is now starting to sober up. It's not a phase he enjoys, because with it comes the memory of all the problems in life that led him to start drinking in the first place, and will no doubt lead him to drinking again in the near future. It's rather a vicious cycle.
It doesn't appear to be a "torch song" in the traditional sense ("a sentimental love song, typically one in which the singer laments an unrequited or lost love, where one party is either oblivious to the existence of the other, or where one party has moved on", as Wikipedia describes it), or at least not one adressed to an actual human lover, but one could make a case for the song being a torch song for Torch's lost love of his craft.
Perhaps, though, it's just called "Torch Song" because it's the only one on the album that even bothers to try to hold up the pretense of the Torch character, with it's repeated refrain of "burn a little brighter now" and the little spoken word interlude between Torch and his doctor. "Christ - it's a romantic way to go really, it's part of the heritage, it's your round i'n'it?" Again, it'd be laughable if it wasn't so sad.