.. What am I doing with this totem thing?

After you come back from talking to Peter the first time #a+-#a-

Peter Fielding

-- Madeline says she needs to see their spirits so she can find out who's destroying all the Grace Group members. She then gives you what she calls a totem to bring the spirits into the circle with Michael. It only works on aware ghosts, so you need to find them and bring them to awareness, then use the totem on them instead of Joey's tie.

The totem, which looks like Madeline's tiara (except for the eldritch blue glow), sits in Joey's inventory until it's needed, at which point Joey will use it automatically.