Use this phrase when you want to comment on or summarize something that you've been told. For example, if someone tells you about a lot of annoying things that happened to them today, you might say:
Sounds like you had a bad day.
As you can see from this example, in casual spoken situations you can drop "It" from the beginning.
Using "it sounds like" and summarizing what someone has said is a great way to show someone that you're listening to them and that you understand their feelings as well as their message.