First of all, it doesn't let you scratch, in the turntablist sense. There's just no physical way to recreate the vinyl experience with tracks that are still inside the iPod. You'd have to sample the tunes into some kind of memory first, and by that point, you might as well connect one or two of Pioneer's virtual turntables for CDs and DVDs.
Also, there's no way for the iDJ to loop beats on the fly, or adjust the tempo of songs. Unless you find songs that already have matching tempos, you won't be able to fade from one band to the next as if they shared a drummer.
Take away scratching, looping, and tempo synching and what have you got? Say you're going to DJ a party. With two iPods already docked and charging, you don't have to worry about plugging in extra power or audio cables. You can use the trackwheels on the iDJ to easily navigate the contents of your iPods. You can preview one song while the other is playing, and independently adjust the treble, midrange and bass of each.
Provided you have an iPod Photo or any newer color-screen model, you can run a slideshow out the S-Video output and onto a TV or projector you bring along. It only works with the iPod in the left-hand dock, howeverit can't blend photos from two iPods, the way it blends their sounds.
I did stumble upon a few freaky tricks, like cueing up "The Sporting Life" by the Decemberists on both iPods, and setting them half a beat apart. The tom-toms thundered after each other in synch, and the vocals sounded like they had a cool delay (or echo) effect. At another point, I played a stand-up routine by the late great Mitch Hedberg paired with random music.
If I turned to a pro like Stephen Webber, turntable professor at Boston's Berklee College of Music, he could probably share more ways to use the iDJ. I guess that's the point: to my (passing) dismay, it turned out not to be some gimmicky toy, but a tool for people who want to put their iPods to use in the serious world of deejaying.