When can we use does?

I'm curious, can you explain to me when is it appropriate to use the contraction "does" in a sentence? I understand it's used to replace "does" with a verb, but I'm not sure of the specific contexts where it's commonly used. Is it mainly in informal speech or does it have a place in formal writing as well? And, are there any rules of thumb to follow when deciding whether to use "does" or its full form?