Monster Lairs continually spawn monsters in Sim Mode in ActRaiser. Each lair contains a limited supply of monsters, and though it's possible for the Angel to defeat them all individually, it's much more effective to guide the people to the lairs and have them seal it. Clearing monster lairs will improve civilization and allow the people to construct more durable and spacious houses.
Sealing a Monsters' Lair will usually produce an item. Typically, either a Bomb! or Strength of Angel. However, some Monster Lairs may produce more rare items, from Magic spells to a Source of Life. Sealing a Monster Lair will also restore the Master's SP; using up all SP causing Miracles right before sealing a lair is a good idea.