This is an essential hardware buy for the PS3 owner, along with the Blu-ray remote and Giotek realtriggers (and Dualshock3, when SCEE see fit to give it to us.....).
The camera is high quality - not HD but as good as you'll need - plus it makes for an effective microphone/earpiece replacement. You can buy several minigames on the PSN - some good, some not so good - and create your own videos using the simple EyeCreate software (included). A friend says it enhances SingStar greatly (not my sort of game).
And of course, you can make video calls to other PS3 owners.