Although they are normally poisonous, Elain can process these for consumption.
— In-game description
It is an Event item item for the renown heart challenge Help Elain clear the spider cave in Caledon Forest. Redcaps can be given to Elain before or after completion of the renown heart. She can apparently make them edible, but you do not get anything for returning them.
Harvesting redcaps transforms you in one of two ways:
You feel tiny! Small spaces are no barrier to you!
You are shrunk to half size for 60 seconds. In this state you can enter Spider Nests in the area and scare up spiders.
You feel enormous! You can make a molehill out of small mountains.
You are enlarged to double your size for 60 seconds. In this state you can lift Big Rocks lying around in the area and throw them .
- This is a likely reference to Alice in Wonderland. One of the ways Alice used to shrink and grow was a mushroom. Nibbling different parts of the same mushroom allowed Alice to grow or shrink.