My .02¢ on the matter is that, aside from situations like Machka described where you don't want to annoy other riders, or perhaps pedestrians if you're on a bike path, you want to use the flashing mode primarily.

Looigi said the magic word: conspicuity. Typical city night riding is flush with light sources, and particularly steady ones, so a flashing light is more conspicuous in that setting. Rural night riding, where there are much fewer light sources and it's darker, either steady or flashing taillights are going to be easy to see (assuming decent and equal brightness in all of this).

I also agree with Looigi's assertion that a steady source is easier to judge location of (or distance to, in the case of a car driver approaching from behind), but I don't think that confers any additional safety in most circumstances. I don't have any facts to back that up, other than that I've never heard of that being the cause of collision ("I thought he was further away") and I've never experienced the phenomenon myself as a driver. So I won't argue the veracity of that claim, and I may be wrong, but given that we're probably talking about battery operated lights here, I'll just say weigh the potential of some gain in safety from a steady light against battery life and convenience; flashing mode will yield quite a bit longer battery life.

Compared to not using one at all, either mode is preferred, so just turn it on and hopefully enjoy many more years of safe riding.