Seed of Corruption is a binary spell, so it will either be completely resisted (no DoT and no explosion) or land for full damage. If the DoT lands, an explosion damaging everything around it is guaranteed.
SoC detonation can be set off by any damage, not necessarily from the Warlock. For example, casting SoC on a mob being attacked by other members of the group is likely to produce an instant explosion. SoC detonation consumes the effect (hence stops the damage-over-time). It damages all enemies within 15 yds of the target. The direct damage from the explosion can crit.
Its damage is affected by talents and gear, but the detonation threshold is not.
Seed of Corruption is most useful in situations where you have to deal with multiple mobs at the same time and you have a tank with AOE taunt (such as Voidwalker). As soon as the tank grabs aggro, quickly cast SoC on as many mobs as you can. Try not to target mobs taking damage from the tank. If all goes well, detonations will wipe all mobs in no time. However, there have to be at least 3-4 mobs in the group. If you can't kill everyone with the initial round of detonations, you'll have a pack of very angry mobs at half-health beating on you and you won't be able to do anything.
If you have a competent and well geared Paladin who is Aoe tanking, this spell can be used to quickly clear large groups of mobs, especially if there are other warlocks and/or mages in the group contributing AoE damage. This tactic can clear dungeons incredibly quickly.
Seed of Corruption is best used when you don't have aggro. It's hard to cast a 2-second spell while taking damage from multiple mobs.
In PvP, it can be useful to steadily cast it at a target which constantly takes damage, as the previous SoC can trigger before the next one arrives; this can be used to deal immense amounts of damage in short time. It can also be cast on pets, and if you can get the pet close to the owner when it detonates, it can provide additional damage to its owner.
Patch 6.0.2 (14-October-2014): Seed of Corruption and Soulburn: Seed of Corruption can no longer both apply to the same target.
Patch 4.1.0 (26-Apr-2011): Seed of Corruption damage has been increased by 20%.
Patch 2.3.0 (13-Nov-2007): Seed of Corruption detonation will now obey line of sight.
Patch 2.1.0 (22-May-2007): This spell will now interact properly with town guards when bystanders are hit by its detonation in a duel.