It works surprisingly well. I'll spare you the trauma of hearing me sing, but even when I just threw in a few nonsensical bars of an improv song, the app did an admirable job of backing up my tune with drums and chords. If you do hit on a worthwhile tune, you can save it on your iPhone, and there's even a "Discover" section in the app where you can hear what other users are recording and rating.
The app allows you to create a full song without any musical talent at all. While it doesn't guarantee that you'll create anything worth listening to, if you've ever wanted to write a song but don't know your sharp from your flat, LaDiDa can help. The app is $2.99 for the iPhone in the App Store.