A camera is used for various purposes. It always works as a one time only device, that means after it served its purpose, it is eliminated and you will need another camera. It is used mainly for two purposes:
When you see one or two characters behaving lewdly in a public room where guards would enforce lewd conduct if they were there (rooms with cobblestone floor usually) you can target one of the characters, then double-click your camera. This will create a photo of the character in your inventory, which contains the lewd conduct. Furthermore, it will create a rumor deed about this character's behavior that can immediately be printed in a newspaper. You can receive only one of these rumor deeds from using a camera per day.
Finally, this will call NPC guards who will appear in up to 30 seconds and will attack the lewd characters.
The portrait that you got from the character does not only show his lewd conduct, it can can also be taken when he is not behaving lewdly. It can be used in the Shape Shift Spell later to make a demon assume this character's shape from a photo.
Mug shots are used in criminal investigation and investigators need a lot of mug shots for all the crimes out there. IN order to create mug shots of characters of certain skin colors, you must find a human NPC with the desired skin color, then use your camera on him. You will receive a random number of mug shots from this NPC.
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