The app captures video in three different resolutions: 192x144, 480x360, and 1280x720. Don't get too excited about the highest resolution; it streams the video to the client application at a fairly slow frame rate and the video is a bit jerky as a result. But if you're just trying to use the WebCamera app as a second, higher resolution camera for your computer, it might just work.
SHAPE says that the app works with Skype and most of the standard Instant Messaging applications such as AIM or Google Talk. I was pleased to find that it also works as a camera for Boinx TV, the production software used for TUAW TV Live, CamTwist, and Camtasia. It would not work as a camera input for iMovie '11 or iChat, nor was it happy with the FaceTime beta. That appears to be Apple's problem, not SHAPE's.
Setting up the app is incredibly easy. With the client running on a computer, you'll see the name of the computer in a list that appears in the app. To connect and start beaming video to the computer, you just tap on the name. Initially I had some problems getting the connection working, so I opened preferences on the Mac client and set the IP port used by the application to 60000. For some reason, it worked fine after that point. To run the app, you'll need an iPhone or iPod touch with iOS 4.0 or later.
Both the iPhone app and the client software provide a way to capture either individual frames or the video stream, which could be useful for security camera purposes. For instance, if you have an older iPhone that you're not using any more, you can easily set it up to be a mobile Wi-Fi webcam and beam video to your Mac or PC. I was hoping that I could write a small Automator script to take a picture every minute or so, but the Apple Automator actions couldn't see the client application. Note to the SHAPE / Mobiola folks: if you can add the functionality to take a shot of the incoming video at regularly scheduled intervals, that would be great. If you can also add the ability to FTP those files to a server, that would be incredible.
So what can you use WebCamera for? I can see it as being useful as a mobile webcam when you're in a Skype call with someone. It can be used as a second camera to complement your Mac's built-in iSight or it can be a temporary security cam or babycam.
I found WebCamera to be a useful app and plan to use it a lot in the future as a second camera for TUAW TV Live. It works very well for a 1.0 release, and I'm sure that both the iPhone and client apps will receive new functionality as time goes by.