What does the new Google Disavow tool mean?

So after months of speculation, Google have finally brought out a Disavow tool!
In the run up to this tool being brought out, we have had a lot of debates in our office on the benefits and possible flaws. For some of our clients who have been affected by the Penguin algorithm, we have been itching for Disavow as we’ve been repeatedly contacting webmasters with no joy! But we also understand that in irresponsible hands, the disavow tool could have become a way of SEO‘s to get away with bad practices.
As Matt Cutts has said, the disavow tool should only be used in the most extreme circumstances.  You can see the video below:

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