It is limited to merchandise, and it can only be in a theme park, not at DTD or any resort. They have a list of suggested merchandise locations on the flyer that they give you with the card (they point you to the big shops at the parks, i.e. the Emporium, Mouse Gear, etc.) They also say that it is at the discretion of the merchandise location whether or not they will accept the fun card as payment (so it may not work in some stores like Mitsukoshi in Japan for example because they are an Operating Participant and not owned by Disney) so before you make your purchase, make sure you ask if they will accept the card.
I was pretty shocked when I read all the rules that came a long with this card. My husband's birthday was Jan 15 so he was the first one in our family to get his. He has not used it yet and the CM said that it does not expire. I was disappointed though that you could not use it for dining. I don't understand why they would not let you do that, the money would still go back to Disney anyway. Oh, well, at least they did not leave the Annual Passholders out in the cold.