I'm no expert, but I just bought one myself not too long ago. It's mainly useful for short to medium range work where quick acquisition is important. Home defense, police work, and hunting, for example.
They generally don't magnify, acting much like iron sights. The advantage over iron sights is that instead of having to focus on three different things at three different distances (rear sight, front sight, target), you now have everything on one sight plane. Just look at the target. The red dot will be in your vision and pretty much in focus. Just put the dot over your target and squeeze the trigger. the advantage over standard scopes is that you don't have to worry about eye relief (i.e. your eye doesn't have to be a certain distance from the rear of the scope). You can look through it from 1 inch back or 2 feet back.
The better red-dot sights have specially made lenses that keep the dot correctly lined up with the target no matter how you're looking through the scope. As long as you can see the dot, the bullet will hit what's behind it.
I haven't had mine (Aimpoint Comp-ML2) long, but I can say that so far, I love it.