This function is supposed to drop the item from the inventory "to the calling Actor's feet". This seems to work correctly only for the player character, dropping the item to his feet. When used on NPC's, the items are removed correctly from the NPC, but still dropped at the player's feet.
An interesting note on this is that if they really have that item, they will drop it, with charges and condition intact. If they don't really have that item, a new instance will be created. If the player drops an item he doesn't have, his weight will still be reduced by the weight of that item - same as the encumbrance bug for RemoveItem (Forum info / DinkumThinkum).
Note that Drop will only work in active cells: if it is used on an NPC in an inactive cell, nothing will happen. -(DinkumThinkum)
Examples of use are found in Bethesda's SlaveScript.
