Although it's not in the item description, the function of the Dried Fingers is to reset the invisible 'Invasion Timer' of the game. Once invaded, the game starts a timer that must expire before the player can be invaded again. If the Dried Fingers are used, the timer is automatically expired and the player may be invaded again.
Located in the Undead Crypt. In the room with the Undead Ditch bonfire, as soon as one enters this room from the main hall, to the right there is a dead end with a ladder in the corner. Go up this ladder and be sure to kill the Leydia Priestess up there. There is a chest next to her containing the Dried Fingers.