In modern usage, it applies to all arguments, not just on the internet, and according to Godwin's law the first side to reference the Nazis is generally assumed to have lost the argument, unless the conversation topic is about Nazis.
Godwin's Law is merely an observational rule and is not meant to comment on conversations that happen to discuss Nazism. For example, there are legitimate connections between Darwinism and Nazi policies, but claiming that Christian conservatives are somehow equivalent to Nazis is very offensive. The key to understanding the difference between the above two examples is also the key to mastery of political debate.
Other Laws of Internet Arguments:
- How to post about Nazis and get away with it - the Godwin's Law FAQ
- George Soros Compares President Bush to Nazis