A. The verse recited when the Torah is raised says, “THIS is the Torah..” and on a similar expression on another verse the Midrash comments, “THIS means – show it with your finger and say THIS is it!”. For those who have this pointing custom it is to demonstrate that Torah is here, now, tangible and relevant.
Why the pinky? I’ve heard/read a number of explanations (none from classic sources):
(1) The pinky is the humblest of the fingers, and Torah is acquired through humility
(2) The pinky had an important function in the Holy Temple service of “Kemitzah” gathering a three-finger’s full of flour meal required for a meal-offering, minus the pinky amount -which remained unclosed. A Midrash relates that when Haman went looking for Mordechai to parade him around on the King’s horse, he found him studying Torah. And what was the subject matter? They were talking about this Kemitzah measurement of flour-meal. Haman was incredulous – this little three-fingers worth of flour outweighed the 10,000 talents of silver he offered to the King! So by pointing the pinky, we’re highlighting the power of Torah.
(3) Someone once told me it would be rude to have everyone pointing their index finger in the synagogue.
BTW – Chabad’s custom is not to point a pinky or any finger, but to simply gaze at the words and letters of the open Torah.