I can see you!
When the Laser Sight utility is enabled, all of the gun weapons and the Longbow will have a dotted line drawn from the Worm to their target.
This makes long distance shots much easier, and means you can get full damage from powerful weapons such as the Shotgun when you may think you can't get the sights aimed exactly.
The Laser Sight only really becomes useful when your weapons aren't in such a plentiful supply, don't waste these, and keep them only for when you need them. This utility is most effective with the Shotgun, as this weapon takes off the most damage.