I'm pretty sure it reflects damage BEFORE it is reduced by your armor. So you could literally watch an ADC kill himself on you while you just watch.
It's quite niche, but also still very powerful.
The damage reflected is reduced by MRes though, so you tend to deal a fair bit less than 30% unless you're running MPen.
All damage but true damage is reduced by resist. And most tanky people don't get magic or armor pen to begin with. The whole magic pen resist argument thats been going on latetly is irelevant because carries (the ones with pen) usually don't get tanky items to begin with.
http://www.youtube.com/watch?v=tSIx7UwJjks Enough picking on kids, back to 9-11