Requires a Soul Shard. However, if the target dies within five seconds, a Soul Shard will be created, resulting in no net loss of soul shards. It is not possible to gain two Soul Shards when used in conjunction with Drain Soul. In order to gain a Soul Shard back, your target needs to be in Honor/Experience range. Note also that casting Shadowburn on a Totem will give you a Shard without granting you Honor or Experience.
If you want to maximize your damage as a Warlock in a party, then you should finish the mob using Shadowburn when there is too little time for another DoT or Shadow Bolt.
In duels, it is tempting to save the Shadowburn until you are sure that the opponent almost dies. A better strategy may be to use Shadowburn whenever possible, right from the start, as this will result in a higher damage output. However, this also leads to a higher Soul Shard consumption.