The zigzag indicator is not really an indicator. It is used to illustrate the price trend in clear form, filter out less significant price change and noise.
Zigzag indicator using percentage of difference in its construction. When a swing low or high is more than the percentage, the line is drawn. Other swings high or low that are smaller than the percentage of changes are ignored. The ZigZag indicator did not have predictive power.
Usage
Zigzag indicator used to highlight the trend. It can be used to determine the direction of trend. It however does not indicate timing for entry and exit. The line is redrawn based on changes of the price.
Another use of ZigZag indicator is to ease the wave count. Many traders use zigzag indicator to count the wave in Elliott Wave form.
Here are some reference on ZigZag indicator:
http://www.forexrealm.com/technical-analysis/technical-indicators/zig-zag.html
http://www.traderslog.com/zig-zag-indicator/
http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators:zigzag
