It shows how good you are at noticing patterns and evaluating positions off the top of your head.
I think it has some pluses for newer players who need to practice the skill of noticing threats right after their opponent makes a move. But blitz play is superficial compared to what you can do in long play -- and it's there in the long games that you push your limits and improve.
For example in blitz if you're tricky enough and fast enough you can often win even if your position is very bad at the moment your opponent runs out of time. To combat this (but keep the quick recognition practice) you can play with, say, a 3 to 10 second increment so that the position still matters at least a little as the time gets low.
I was wondering why so many people only play blitz chess on here so I tried out a few games. I was curious if other people feel the blitz chess improves chess skills or if it simply shows your ability to notice tactics/patterns quickly (and shows understanding of openings to a certain depth)?