Just tried clicking it in the game somewhere but it didnt work, so I gave it to the dad and nothing happened...So Now it's gone. Should I have clicked it in the yard instead?

The person you give it to will go outside and pour it onto the ground. You will see small rainbows appear over their head, letting you know the potion has worked. If it is raining, the rain will stop and the sun will come out. If you have a little person who dislikes rain, this can be useful. If you use it at night, it makes things a bit brighter, but not daylight bright.