The Napalm Launcher is a great area-denial weapon. Take it out and shoot it in corridors. This makes it really difficult for enemies to go through unharmed, so they'll go through other paths you can cover yourself.
As a weapon, the Napalm is a useful alternative to the Grenade Launcher for covering a retreat, as the fireballs will hurt an enemy as soon as they hit the ground. Otherwise, the Napalm Launcher has no uses as a weapon.
The Napalm Launcher is not common in competitive matches, as players generally prefer Grenade Launcher over this weapon.
It can be accessed in Single player as well (using the 'give all' cheat). It has nice effects on weak enemy infantry like Guards, but is not powerful enough to use it effectively against any stronger unit (except for Scientists; however, it's difficult to hit them). Also, it is difficult to aim as the napalm ball is fired in a ballistic arc.