It can be the best answer if you can get it going properly.
These days it's called going viral but that is just word of mouth with lots of people.
The real question is how do you kick it all off? If you have an App that people are willing to talk about like Angry Birds then it's by far the best strategy.
If your app is more of a pedestrian but useful style application then word of mouth would be one of the things you use but not rely on to get the word out there early on.
What does the word of mouth style of promotion cover?
Typically most marketers consider this the most effective form of promotion for nearly everything because people listen to those they know and trust before strangers or random advertising.