Flashcards are cards with a word (or phrase) on one side and its translation on the other. You can buy ready-made flashcards, and these can certainly be helpful, particularly if you're inexperienced at learning another language. However, it is more effective if you make them yourself. Not only will the cards be customized to your own use, but the activity of selecting words and writing them down help you learn them.
A standard way of using flashcards is simply to go through a set number each day, separating out those you have trouble with, so you can review them more often. Keep these ones handy so that you can go through them at odd moments during the day when you're waiting for something.
Use the flashcards as a handy way to group words in different ways. Deal out the cards and move them around, looking for connections.
If you have word-family flashcards (recommended) - e.g., cards with various related forms of a word - you can make different sentences with your cards. You could also play cards with them, if you have others to play with. You could play a version of rummy, for example, where the sets are infinitive, present tense, future tense, past perfect. Use your imagination!
A bingo game with flashcards is another fun way to practice. Construct bingo cards (large cards divided into a certain number of spaces the same size as your flashcards) with the native language words on it. While this is better played with others, you can at a pinch play with yourself, simply picking out a flashcard from the pile and seeing how quickly you can match it with its counterpart.
Learning words in isolation will not help you much in dealing with words in context. You do need to practice reading/writing/speaking/listening sentences. But flashcards are a useful means of memorizing vocabulary.
Flashcard software
VTrain (Vocabulary Trainer): is flashcard software apparently used in the language labs of 40 Universities and hundreds of high schools; it's free for educational establishments. It's shareware.