Q1:
"Doesn't work for me, it turns on but its not 'sniffing' anything. Maybe because I'm playing private server?"
A1: I am pretty sure, because the packets are different on private realms than the official realms.
Q2:
"What does this do exactly?"
A2: It monitors the packets (connection) between your game and the servers, picking up chat related code, making it into resonable text and showing it to you in the console.
Q3:
"So, it reads horde language?"
A3: Yes... it can read the opposite race language before it gets encoded into jibberish.
Q4:
"what do it does?XD"
A4: Look at my first picture, on the top post.
Q5
"is this bannable?"
A5: It is against the TOS, so if Blizzard find out in some way you will get a penalty in return. About detecting, it monitors the connecting between the game and the servers, so it is not modifying anything. Thus making it almost impossible for Blizzard to detect it with their current Warden. Maybe in future, they will add more security to their network getting packet monitored, but for now I have not seen anything regarding Warden banning accounts due to packet monitoring software. - Maybe someone that uses packet monitoring a lot can state his opinion regarding this question too.
Q6:
"Have you found out how to reduce spam? "
A6: Unfortunately not yet. The thing is that the spam is usually from the addon channel. If I knew what bits and bytes decides addon channel from the say channel I would try to make a filter function.