Well the interesting things probably involve using the SPI port to talk to some memory expansion.
At Google, Henner Zeller built a circuit pretty much like this that drove an RGB LED and was used for Test status 'orbs'. Basically with a bit of code your orb would turn red if your tests started failing in the continuous build.
I used one to add a foot 'key' to my setup when playing World of Warcraft (it was my push to talk switch) but it could have been anything, it pretended to be a USB keyboard with one key :-).
I've seen them used to pretend to be a mouse and move the mouse around (a 'jiggler') so that a machine wouldn't kick in the screen saver.
All various sorts of things you might want to do with a bit of compute.
Head over to http://hackaday.com or http://makezine.com and search for Arduino or ATMega or microcontroller -- you should have a ton of hits describing various projects.
Probably not very. The Arduino uses hardware serial and a USB-to-serial chip to communicate with the PC, whereas this has no hardware serial or USB-to-serial at all and is missing various peripherals.
Compared to an Arduino, this is smaller, consumes less power and has a "standard" layout and costs about 1/3rd of an "official" Arduino. The downsides are that there's less memory and less cpu perf, there are less I/O pins, but a lot of (practical, non-beginner) projects don't need that many pins. A highlight would be hardware SPI and I2C support, which are communication protocols for small gadgets (the AVR chip in Arduino has I2C/SPI but you can't use it from Arduino code, you need to write C) and PWM (pulse width modulation) which is a pseudo-analog output signal used to control things like servos.
So what could it be used for? Get a bunch of sensors and actuators that communicate with SPI/I2C/PWM. Think about things like accelerometers, gyroscopes, proximity sensors, liquid crystal displays, motor controllers, servo motors. Now plug them together and build just about any gadget you can imagine.
It's better than an Arduino if you're short on space, weight or power consumption. Things like tiny flying machines or wearable gadgets.
If you're a beginner looking for your first microcontroller platform, the Arduino will probably be easier to approach.
