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The Centipede Demon guards the entrance to Lost Izalith and drops the very important Orange Charred Ring when defeated, which reduces lava damage and adds slight fire damage to the player's kick attack.
Souls: 20,000 (+500 for each tail killed)
Drops: Orange Charred Ring
Since much of the area is covered in lava and the player won't have access to the Orange Charred Ring yet, this can be a difficult boss fight, especially since it has decent ranged attacks. Following the path to the far right will lead the player to a large ground area and a corpse with Green Titanite shards. Fighting the Centipede Demon here will allow melee players to deal damage without worrying about lava damage.
According to the description of the Orange Charred Ring, the Centipede Demon was formed when the enchanted ring was dropped and lost. This could be seen as a nod to the Dark Souls concept of vagrants, where equipment and items dropped in the world can become powerful enemies in another players world.