It's not bad as a rough start, but it's not perfect, either. The ratio (weight divided by square of height) doesn't perfectly represent the best proportion between height and weight (something you can usually see with your eyes). So effectively, the BMI formula 'allows' short people (under 5'2') to be relatively heavier than tall people (above 6'). For instance, George Clooney has a BMI about 30, and Jonah Lomu has a BMI of 32.
Moreover, often fatter people (according to BMI) don't have the bad health expected of them. What also seems to matter as much if not more is how fat is distributed about the body. People who are 'apple-shaped' (rather than pear- or hour-glass shaped) are more likely to have heart disease and other health problems thought of as extra risks for the obese. So someone who is apple-shaped but with a BMI below 30 may be at more risk than a very curvy person with BMI much above 30.
There are more sophisticated ways of measuring excess body fat. The one you can do at home is waist to hip ratio. You calculate waist to hip ratio as
waist in cm or inches/hips in cm or inches.
If the result is above 0.94 for men or above 0.82 for women, you're at risk for having excess body fat.
Erm...sometimes it's good. I think what you really need is a doctor to tell you your body fat percentage. That would be a better indicator of whether you're um...fluffy. See with a BMI, if you are heavily muscled or big boned, you may be classified as overweight when you are perfectly healthy.
Is usually pretty accurate, but it shouldn't be relied on in all cases. Often people who are muscular and healthy appear to have unhealthy BMI's. You instead can ask to get your fat percentage measured.