The old standard explanation was that the candle used up the oxygen and that water flowed in to take its place. On a good day, the water rise is nearly 20%. These days I don't understand why I never questioned it. Yes, combustion does use up oxygen but it also makes carbon dioxide and water vapour. The water vapour condenses as the experiment cools and a little carbon dioxide dissolves in the water which might produce a small reduction in volume. The main reason for the reduction in volume is due to cooling after the flame goes out. The problem is that the flame had to be lit before the bell jar was placed and sealed so that the air inside it was hot already. After the flame goes out, the gas cools and contracts and that is the main reason that the water level rises. The give away is that the main rise in water level happens when the flame has already gone out.
The other issue is that only a little of the oxygen is used up before the concentration becomes too low for combustion. See http://misconceptions.science-book.net/wp-content/uploads/2011/09/Chap2-1.pdf for the full details.