The use of FAQ mode is indicated when a particular subject has been well and truly hammered into the ground over a period of years. When enough newbies ask the same questions over and over and over again at the bottom of a page because they missed it somewhere in the middle of the 15K of text, you need to reduce the thing to FAQ mode.
What are the benefits of FAQ mode?
Anybody looking for a quick answer to a common question posed on the page topic can find their question, or one very similar, along the left border. The consensual answer provided by the Wiki community follows.
It is much easier to explain the benefits of Wiki to someone who is maintaining a FAQ file than to someone who is used to writing in other modes.
What are the drawbacks of FAQ mode?
The question in the mind of the reader may never be addressed in the FAQ list. Oops.
FAQ pages share some of the drawbacks of ListMode -- increased verbosity is one. DocumentMode may provide a better alternative.
"FAQ" pages often contain questions that are not frequently asked: authors preemptively answer questions that they think might be asked, or authors carefully craft the questions and answers to advocate certain positions or products rather then to simply provide useful information.
Occasionally the "answer" to a question may be a biased opionion, or simply incorrect. It's better to write stuff one is not sure of as a "question" in a FAQ or in ThreadMode, so it won't be confused with community consensus.