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The main advantage of this ability is that it doesn't depend on the stats of the target at all. While Banshees can deal significantly more damage to peasants, here the situation is completely different. In other words, the ability is useful against powerful units, and of course, against weaker ones too, but to a much lesser extent.
And the fact that the AI doesn't react to it or isn't afraid of it is just a quirk of how the developers programmed the game.
Added after 2 minutes:
Wouldn't 12 Messengers be able to take down 4 Lava Dragons on their own? (Specifically, Messengers as an upgraded unit that deals more damage). The damage from the ability here will be approximately double, depending on the creature's defense and health; for a level 6-7 unit, it's roughly equal to an attack with luck, maybe a little stronger.