Some good information from EvE Uni
Auto-Targeting (previously referred to as Friend or Foe (FoF)) missiles, found under 'auto-targeting' in the market menus, are missiles which don't rely on locked targets in order to fire. When activated, they will fire on the nearest hostile (ship/drone which has aggressed you). Auto-Targeting missiles will only activate successfully if there are suitable targets within range. Auto-Targeting missiles will not fire if there are no suitable targets within range, and they cannot be run "hot" in preparation. Auto-Targeting missiles will not fire on a cloaked ship. Auto-Targeting missiles will fire on a decloaked ship if it previously aggressed you, without waiting for them to re-aggress. There are only Auto-Targeting versions of the three guided kinds of missile -- light, heavy and cruise missiles -- which can be loaded into their corresponding launchers. Each version comes with the usual four different warheads for four different kinds of damage.
Auto-Targeting missiles have the same flight characteristics and explosion profiles as their normal cousins, but do a bit less damage. Auto-Targeting missiles are rarely useful, but they can help if you can't target because of ECM jamming or (more rarely) sensor dampeners, particularly if you only have a few enemies (the fewer enemies you have, the better the chance that your Auto-Targeting missiles will hit the one you want them to hit).
http://wiki.eveuniversity.org/Missile_Launchers#Friend_or_Foe_Missiles