Any damage taken by the target will break the effect. This includes direct damage, AoE attacks, damage over time and other effects such as [Hand of Sacrifice]. However, damage from the Censure debuff - caused by [Seal of Truth] - will not break the effect.
Repentance is very useful in both PvE and PvP:
In PvE it can serve as an excellent form of crowd control, with its 1 minute duration and 1 minute cooldown allowing paladins to keep a single target incapacitated indefinitely. It can also be used in emergencies or in order to allow the healer to catch up on damage. Unlike some forms of crowd control it works with many races - Humanoids, Demons, Dragonkins, Giants and Undead - but bear in mind that many mobs (such as Bosses) are immune to effects such as Repentance.
In PvP Repentance is particularly useful. It can be used as a basic stun/interrupt, halting important casts or giving you time to heal. Its 30yd range means it can be useful against ranged types, allowing you to get close to them while also stopping their attacks. It can also be used along with [Hammer of Justice] to allow the paladin to stun/incapacitate two targets at the same time. Since it breaks on damage, Repentance is perhaps most useful for incapacitating a secondary target (or healer) while focusing on another target, or in order to give you a chance to self-heal.
Patch 3.1.0 (2009-04-14): No longer resets the Paladin's melee swing timer.
Patch 3.0.2 (2008-10-14): Mana cost changed to 9% of base, duration increased to 1 minute (10 second PvP duration), now usable against Demons, Dragonkin, Giants, Humanoids and Undead.
Patch 1.6.0 (2005-07-12): Duration changed from 6 seconds to up to 6 seconds.
[Hand of Sacrifice]. However, damage from the Censure debuff - caused by 
[Seal of Truth] - will not break the effect.
