The use case: to sign a electronic document, users view the document, and if they agree take a picture of themselves with their webcam (done through Flash from the browser). Then a PDF is generated containing the document and the picture in place of signature.
This is a biometric signature, which is not as strong as a digital (cryptographic) signature, but stronger than having users draw their signature, as a photo is harder to forge than a drawn signature.
Has anyone seen this technique being used on an existing web site?
This idea isn't secure by itself. When talking about digital signatures, we are looking for these properties:
Your method fails at all three: