Without even thinking about it, your friend is ready with an answer: "Because it does [insert a description of the card's text, a common application for it, and an excited description of a corner-case scenario in which it absolutely shines and will win you the game on the spot]."
You know that the card in question shouldn't be in your friend's deck, but everything that your friend explained to you in defense of the card is technically correct... so how do you convince your friend to make the right decision and cut the chaff?
In order to make a compelling argument for why your friend should cut that unplayable card, you must first recognize that every card does something, at least some of the time. Heck, even the worst cards can occasionally contribute to wins. So the fact that a card can "win games" actually means very little, especially given the fact that every card you might propose to replace the dud in your friend's deck can also directly contribute to victories (and will do so far more frequently than the card that you're trying to get your inexperienced friend to cut).
When a player is deciding whether or not to play (or, in Draft, pick) a card, it needs to be compared to the other available options, within the context of the deck that is being built. So instead of convincing your friend that the card that you think (or know) that the card is bad, instead you should explain why other available cards are better than the card you want to cut.
Baseball statisticians (specifically sabermetricians) go through every bit of in-game data to determine each Major League Baseball player's Wins Above Replacement (WAR). A player's Wins Above Replacement is determined by comparing the number of wins that player is directly responsible for, minus the number of wins that a minor league or bench player in that position would provide the player's team.
As Magic players, we don't have access to the huge amounts of raw statistical data that sabermetricians get to dig through, or the (relatively) clean data that sabermetricians present to fans.
However, we can apply some rules of thumb to determine if a card is worth a spot in a player's deck, or if that slot would be better filled by an extra land or a sideboard card.
Making the Cut
Every card in your Limited deck should be essential to your overall plan.
If a card is good most of the time (think Benalish Veteran), you won't need it to do anything spectacular for you since you'll be getting your mana's worth game in and game out.
If a card is decent most of the time (think Goblin Piker), and it fills an important role in your deck by helping you fill out your curve, giving you another much needed creature, and/or is simply the best option that you have to round out your deck, then you should not feel at all ashamed to play it.
If a card has a negligible effect most of the time (either because it is going to rot away in your hand or because it requires a very specific set of circumstances to work even when you can cast it), it had better be fantastic when it works for you or else you shouldn't even think about playing it.
So you can live with a card having a marginal effect (or even no effect) when it doesn't work, as long it's going to be great for you when it reaches its full potential (provided that you can turn it on a reasonable amount of the time). And you should have no problem playing cards that are going to be good most of the time, even if they have a relatively low ceiling. But you should never play a card that has no real impact most of the time, and at its best will still only have a marginal effect on the game.
Is It Worth a Card?
It shouldn't take long to explain to anyone why Taste of Blood isn't worth a card in a non-bloodthirst deck. While dealing 1 damage and gaining 1 life is an effect that is worth paying roughly one mana for—if you have an extra bit of mana lying around, you might as well use it to drain your opponent—it just isn't worth a card when you compare it to the effects that other cards provide.
But even in a bloodthirst deck, where Taste of Blood is at its best, it's still pretty unimpressive.
Does a four-mana 3/3 first striker that requires you to discard a spell sound very good to you? It shouldn't sound good to you, because it isn't. So even if you do use a Taste of Blood to turn on your Blood Ogre, you won't have gained much.
A 5/5 for five mana that requires you to discard a card is a bit more reasonable, but even when you're powering up your Gorehorn Minotaurs, your Taste of Blood will be about on par with a Goblin War Paint (which is a card that I leave in the sideboards of most of my red decks because I don't want to set myself up to get two-for-oned by a removal spells).
Would you rather have a Lava Axe or a Taste of Blood in your deck? No, Lava Axe won't be able to power up your bloodthirst creatures, but it deals five times as much damage as the black sorcery, allowing you to win games that might otherwise be far outside of your reach.
A card like Goblin Piker, Act of Treason, Lava Axe, Lightning Elemental, Bonebreaker Giant, or Goblin War Paint will always get the nod long before I would even look at Taste of Blood. Even if I am scrounging for playable cards to fill out my deck, I'd rather run an eighteenth or even a nineteenth land before I played a Taste of Blood.
Flight, like Taste of Blood, just isn't worth a card. Sure, you might occasionally win the game by giving flying to your Stampeding Rhino—which would otherwise just trade with your opponent's Wall of Torches—and bashing your opponent for 4 points of evasive damage a turn. But over a large sample size, you will win far fewer games with Flight in your deck than you would with a replacement.
If you're looking for a card that can help you close out the game (which is really when Taste of Blood and Flight are at their best). you can do much better. While it isn't a great fit in most decks, the infrequently played Hideous Visage is a fine way to punch through for those last few points of damage. Similarly, Lava Axe, Levitation, Lure, and such are all good enough at actually closing out the game for you to strongly consider playing them anytime you feel like you need a way to win games that go long (even if your opponent is playing bigger and "better" cards than you are).
Dragon's Claw and friends are similarly unworthy for inclusion in your deck. Sure, maybe you'd play it if you're playing a mono-red mirror match where you know that your opponent's main route to victory is casting multiple Lava Axes, or in some similarly outlandish corner-case scenario where you know that your opponent will have a ton of trouble dealing more than 20 damage to you even if you spend an entire card, and a turn, casting a spell that does nothing other than inflate your life total in small increments. But unless you're in that extremely specific corner case, then you shouldn't waste any time trying to decide if it has a place in your deck.
Conditions Not Met
Circle of Flame just isn't a good card in Magic 2012 Limited. Unless your opponent showed you a giant stack of Tormented Souls, Goblin Pikers, Child of Nights, and Lightning Elementals in Game 1, you just aren't going to get much (or any) mileage out of Circle of Flame.
While Circle of Flame might seem like a good card against aggressive decks, the fact is that even the most aggressive decks only have a couple of creatures that will actually be unable to attack into a Circle of Flame. Goblin Fireslinger has no problem with Circle of Flame, Goblin Arsonist is still a very real card even if it is going to die immediately upon attacking, cards like Merfolk Looter and Gideon's Lawkeeper don't need to attack, and if your opponent showed you multiple copies of Sacred Wolf, that probably means that he or she has a bunch of good Auras to enhance them with.
If you are looking to deter early attacks, you would be better off having almost any cheap blocker in place of Circle of Flames.
Context, Context, Context
How do you decide whether or not to main-deck a conditional card?
Should you main-deck that Wall of Torches that you picked up at the end of pack 2? If you're playing an aggressive Red-Black Bloodthirst deck, then no, you probably should not maindeck your Wall of Torches (unless your deck consists almost entirely of evasion creatures, and you feel like you need some extra help against green and white decks that are full of hard hitting ground creatures).
But if you're playing a Red-Blue Control deck that looks to win in the air with Skywinder Drakes, Aven Fleetwings, and Chasm Drakes, then Wall of Torches is going to be a particularly appealing maindeck option (especially if you're looking to fill out your curve).
While Levitation is several orders of magnitude better than Flight, in a lot of games it won't be worth the card, or the mana, that you would need to spend on it. At its best, Levitation is awesome, providing a way for you to win when your opponent would otherwise have the game completely in hand. But at its worst, Levitation does next to nothing, serving as a card that does nothing to improve your board presence when you are already behind.
While Levitation can play a key role, acting as a route to victory in a deck with lots of ground creatures but not a lot of ways to break through—imagine a deck with lots of Child of Nights and Bloodrage Vampires, or a big green deck full of Stampeding Rhinos, and Vastwood Gorger type fatties—the majority of decks that actually have enough blue to cast Levitation are already chock-full of evasion creatures and/or other legitimate routes to victory for games that go long.
If I'm playing a blue deck that already has a lot of creatures with evasion, I would probably rather have another tempo card (like an Unsummon), a defensive card (like a Wall of Torches), or just another decent creature that might be able to trade in combat or apply pressure to my opponent (like a Zombie Goliath) than a Levitation that might give a couple of my creatures flying (creatures which I very well might need to block ground creatures with anyway).
If I'm playing a controlling blue deck, then I'm going to want to include a card that can have an immediate effect on the board instead of Levitation. Sure, I might board Levitation in if I'm playing against a deck that has a ton of fliers and I don't have as many fliers / removal spells as I need to hold back my opponent's evasive army, but I'm not going to feel inclined to main-deck it when I could instead have a card that will be good even if I'm not already ahead on the board and/or in the race.
If a card only works under exceedingly rare situations like when your opponent is on 1 life (like Taste of Blood), or if it only provides you with a marginal effect when it works and will often sit in your hand or set up an easy opportunity for your opponent to two-for-one you (like Flight), then you just shouldn't be playing it in your deck.
If a card only works under specific circumstances, such as when you're already ahead, or when the board is completely locked down (like Levitation or Lava Axe), then you aren't always going to want to play it. There will, however, be decks where you do need that effect, and consequently it may become one of the most important cards in your deck, performing far better for you than any other replacement card would.