As in social science in general, these assumptions are at best approximations. The term is often used derogatorily in academic literature, perhaps most commonly by sociologists, who tend to prefer structural explanations to ones based on rational action by individuals.
Homo economicus bases his choices only the consideration of his own personal "utility function". To the extent that this utility function does not consider the well-being of others, Homo economicus is selfish. Some believe such assumptions about humans are unethical. Economists tend to disagree, arguing that it may be relevant to analyze the consequences of enlightened egoism just as it may be worthwile to consider altruistic or social behavior.
How is Homo economicus rational? Usually in the sense that well-being as defined by the utility function is optimzed given perceived opportunities. See Rational Choice Theory and Rational expectations for further discussion; the article on Rationality widens the discussion.
The Austrian School criticise homo economicus as an actor for economic forecasting. They stress uncertainty in the making of economic decisions, rather than relying on the rational man who is fully informed of all circumstances impinging on his decisions. They argue that perfect knowledge never exists, means that all economic activity implies risk.
Many critics of the dominant neo-classical economics use "Homo economicus" as a straw man target. "Real people do not have cost-less access to infinite information and an inbuilt ability to process it, in no time at all." The tragedy is that Nobel prize level economics often finds ways of acknowledging these facts. In that limited sense HE is a straw man. But you can be taught economics formally for more than 5 years without being taught that work. (Try asking for your money back from a neoclassical tutor. Increasingly people drop out of economics after 1 year). See post-autistic economics network to change 1st year Economics at http://www.paecon.net/. The Economics Textbook Industry is also looking for textbooks which are neo-classical dominated only for the first 200 pages of 600. Otherwise Wikipedia Schumpterian Creative destruction will wipe them out!
Although not typically used this way, Homo economicus could probably also be used, with some degree of felicity, to critique the characters of Ayn Rand.
Comparisons between economics and sociology have resulted in a corresponding term Homo sociologicus, to parody the image of human nature given in sociological models. Hirsch, Michaels, and Friedman (1990, p. 44) say that homo sociologicus is largely a tabula rasa upon which societies and cultures write values and goals; unlike economicus, sociologicus acts not to pursue selfish interests but to fulfill social roles. Sociologicus may appear all society and no individual.
See also the discussion at Indifference curve.