Generally speaking you give someone a challenge coin when you want to honor them for a good deed or for their hard work.
Challenge coins still play a major role in the military today, much like a "Thank you Plus" or "Great Job Plus". In the armed forces not every action rates an honorable medal or certificate, for those moments when someone is deserving of more than a thank you, awarding them with a challenge coin fills the gap.
As a very simple miltary example. You're out on a 3 day field op. One of your guys or gals busts their butt during a particularly stressful couple hours of it. Shows great attitude, effort, and was overal top notch. If you tried to write it up, it wouldn't "quite" be "award worthy" but definitely deserved "recognition."
Now even if you’re not a veteran or a member of the armed forces, you can still recognize and award someone with custom challenge coins.
You can use challenge coins to reward employees after the completion of a special project or if huge accomplishments have been made company wide. The coin design can be representative of the achievement, the employee or the company goals. Studies show when employees are recognized for a job well done, they feel more satisfied with their job performance, are more likely to reach for higher goals, and are more loyal to their organizations.