The heads-on-sticks symbolize Kurtz's excessive brutality and they're the final clue we need to decide that, yep, Kurtz is mad.
The appearance of these heads-on-sticks is the graphic climax of the book, which comes conveniently close to the plot climax. Coincidence? Not if you're into Conrad half as much as we are. We've seen some pretty horrible things up until this point, but the heads on sticks take the cake. And check out how the horror show is revealed to us:
Now I had suddenly a nearer view, and its first result was to make me throw my head back as if before a blow. Then I went carefully from post to post with my glass, and I saw my mistake. These round knobs were not ornamental but symbolic; they were expressive and puzzling, striking and disturbing—food for thought and also for vultures if there had been any looking down from the sky; but at all events for such ants as were industrious enough to ascend the pole. They would have been even more impressive, those heads on the stakes, if their faces had not been turned to the house. Only one, the first I had made out, was facing my way. I was not so shocked as you may think. The start back I had given was really nothing but a movement of surprise. I had expected to see a knob of wood there, you know. I returned deliberately to the first I had seen—and there it was, black, dried, sunken, with closed eyelids—a head that seemed to sleep at the top of that pole, and, with the shrunken dry lips showing a narrow white line of the teeth, was smiling, too, smiling continuously at some endless and jocose dream of that eternal slumber. (3.4)
Marlow doesn't come right out and say, "Oh, and by the way, those ornamental knobs were actually heads." No—he walks us through it, showing us his reaction: "its first result was to make me throw my head back as if before a blow." But we still don't know why, even after we find out that they're "symbolic." In fact, we don't find out that they're heads until halfway through the paragraph.
So, it's interesting is a little, like, "No biggie," about all this. As if to symbolize the way Marlow combats horror with humor, he tells us that these "black, dried, sunken" heads are "smiling continuously" in their "jocose dream of eternal slumber." Which, let's face it, wouldn't really be the language we would use to describe severed heads.