If you read the official preview a bit thoroughly you will have read that it prolly has something to do with duplicating a cast.
Maybe stupid that I post this a bit late and at the same time that it's on the frontpage but I suspected the proc to be something like that allready when the official preview was released.
So it will be a chance on spellcast to duplicate the cast you just did.
How the weapon is gonna differentiate between putting up a dot or casting an incinerate is a bit unclear for me but we'll just have to hang tight till we get more info on it.
Let's just hope it wil outlast the entire expansion though, nothing more frustrating in spending thousands of golds on living embers and hours of time just to see it replaced for an heroic staff or sword/offhand from 4.2 or a normal from 4.3 raid.
About the transforming into a blue dragonflight form. I just think that the staff wil also have a use effect outside of combat so you can mount a blue dragon just like the sand stone drake from Alchemy. So you actually become the mount itself. Only this time you won't be able to get to carry around people on your back becuz you are just to pro to allow that at that moment. "You wanna mount my legendary mount? Go play with your legendary pet you fool! MUHAHAHAHA" trolololol