Only scary if you have an iSight, surf in the buff, AND have the iSight turned on and displaying inside a window. A malicious Java applet can't actually activate the iSight if it is not already on.
Basically, in English, this security vulnerability means that it could, in theory, be possible for a Java programmer to write a Java applet that will show him whatever is in any QuickTime window you happen to have open on your computer at the same time as you are running the Java applet. As security holes go, it's rather...farfetched.
(I remember one Apple security bug that was kind of interesting: if you had a network of Macs, *and* the Macs were all configured to get their list of users from a central LDAP server, *and* you had a BootP server on the same network, *and* an attacker could sit down in front of the BootP server and take control of it, *and* the attacker reconfigured the BootP server to send out corrupt BootP information, *and* someone using one of the Macs on the network restarted his computer, then the attacker could get the root password for that Mac. Talk about farfetched scenarios...but Apple fixed it anyway.)