It takes into effect vertex alpha in conjunction with the material diffuse color, but not the actual vertex colors. So... For it not to show up as black you will need to have something other than black as the diffuse color. As well it uses the specular for brightness so if your spec color in the material is black it will show as black.
Sorry, at one point in my testing i used an external model and it was black until I changed the vertex colors. I noticed this initially as the BSP worked. That was fixe din the final shader though so vertex colors should have no effect, but as above the material diffuse and specular do. The reason for the specular is so that you don't need to change value sin the shader itself as the spec is used.