Sugar helps keep your henna paste from drying too quickly by pulling moisture in from the air. The longer the paste stays wet, the more dye will absorb into your skin creating a darker and longer lasting stain.
If you live in a very humid climate, you can use less sugar in your henna mix as the readily available moisture in the air will keep your henna paste wet. If you live in a very dry climate, you may need to add a bit more sugar.