Applesauce helps the baked product retain moisture, thus elliminating the requirement for as much fat. The water in baked goods evaporates out during the baking process. The fat is what makes cakes and breads feel moist in the mouth.
But applesauce contains significant amounts of fiber, you know, that stuff that when it gets wet absorbs bunches of liquid and tuns into a consistancy like mucous. For that reason, too much applesauce will make your baking come out gooey.
Applesauce is used in quickbreads (bannana bread, spice bread, applesauce bread, muffins, oatmeal cookies, anything with a fairly coarse texture. It doesn't work well in yeast-risen breads or pancakes as it adds a heaviness and ruins the light texture. I also wouldn't use it in cakes, except maybe a carrot cake.
So in summary, if the baked product is made from a batter, and is leavened with baking soda and an acid, or baking powder, you can succesfully replace about a third of the oil with applesauce. It's a good technique when done properly.
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