Documentation is a good thing but sometimes it's hard to do it right without seeing the outcome of your text. Doxygen is a great tool for exposing documentation written within your code. Matt Farina shows how to use Doxygen to create a HTML based documentation website for Drupal.
If someone wants to create API documentation they often use the Drupal API Module. This is what powers the Drupal API and it can be used to build documentation sites for custom Drupal sites and modules. Using the API module is great. But, there are two reasons I prefer using Doxygen to build the documentation.
Matt is also one of the authors of Drupal 7 Module Development so take a look.