Li Shenron said:
I've seen it used only by characters who had some improved abilities such as the Improved Counterspell ("same school instead of same spell") and Reactive Counterspell ("no need to ready an action") feats, otherwise it never happens because it is just better to cast a spell yourself than to try counter.
That sums it up for me as well. Unless you have those feats, counterspelling is simply inefficient. You are almost always better off counterattacking with a spell of your own.
To counterspell, you have to ready an action for the odd chance that he casts a spell instead of doing something else, then he has to cast the correct spell (i.e. one you actually have memorized) or you must use dispel magic (which is less than guaranteed). If he doesn't cast you've wasted your action. If he casts a spell that you don't have memorized and you don't have dispel magic (or simply the caster check), you've wasted an action.
Counterspell is really only useful in exotic circumstances unless the character is built to counterspell. These include:
1. You have to block a particular spell effect from happening. (Simply letting your foe complete the spell and then counterattacking him on your turn is not an option for some reason like he is about to teleport away or he is about to use his spell to ignite the explosives etc.)
2. A lower level caster is facing a significantly higher level one. (If you are a 5th level wizard, counterspelling your foe's maximized, empowered fireball is better then casting yours on him.)
3. There is no better option because you can't otherwise counterattack for some reason. (You are loaded with fire spells and are facing a fire-magic-using creature immune to fire or you can't reliably get through your target's SR. At that point you are better served trying to block his attacks because your counterattack will be ineffective.)
So far, I have only once ever seen counterspell used. The PCs used it to counter a BBEG fleeing with teleport because they missed him twice with dimensional anchors and had no other way to stop him.
Tzarevitch