It only works properly with Paper, mind you, though that's a pretty great app.
Pencil's expressive features like Erase and Blend are only available when Pencil is connected with Paper. However, Pencil will work well as a passive (not connected) stylus on any standard touchscreen. Note that Pencil’s expressive features also only work on iPads with retina displays, (iPad generation 3 or 4, iPad Air) or iPad mini.
As it has to do all of the work itself, in the stylus, it's a fully-fledged, battery-powered gadget in its own right rather than a Wacom-style affair. It charges by USB port and supposedly lasts a month on a charge.