Exactly what is a modualtion effect for guitar? Basically, a modulation effect is a chorus, ring modulator or flanger pedal. These use a very short delay to create a stereo (shifting) sound that is warm and full. Some classic bands have based their entire sound around a certain chorus effect, while flanger pedals are usually reserved for special effects (listen to the intro to "Atomic Punk" by Van Halen for an example of this).

 

Ring moulators are a slightly more extreme effect, and have been used in many styles of music. Even keyboardists have used guitar ring moulators to add depth to stock synth sounds.

 

Stereo chorus pedals are the most popular type of modulation effects, though mono pedals can also sound great sometimes (like the boss range, for example). The "wide" sound of a stereo flanger or chorus can really open up the guitar sound and even create a keyboard-like effect with the right choice of chords and picking style.

 

Using chorus pedals for lead solos is less popular, though a few innovative guitarists have done this with great success. Eric clapton used chorus pedal effected lead sounds in the 1980s to great effect, to name just one example.