In China reputation is extremely important. This proverb tells us not only is reputation important in humans but for everything to be. Face here is used metaphorically as in not loosing face (social custom). The Chinese, value reputation highly, thus creating this proverb.

You might use this proverb when someone behaves dishonorably (once or repeatedly), it can be said directly to that person giving advice or a warning in order to rectify or avoid something more.