Relay Node Indicator IE in Initial UE message is introduced in Rel 10 which is an IE for LTE Advance feature. This advance feature is called Relay Node. Here Relay Nodes are small nodes which only have L1 and L2 layers of eNB and they communicate with eNB over RRC and acts as a relay node to UE.
Now consider an example where UE is in IDLE state and network triggered RRC Connection establishment needs to be done. Here eNB will send Initial UE message to the EPC code - MME with this added Relay Node information.
This Relay Node IE in the Initial UE message is used to indicate whether the RRC Connection establishment is for a relay node connected UE or a directly connected UE.
Now MME updates the location of UE to HSS based on the Initial UE message contents.