Here is a brief history.
The M79 saw combat in the Vietnam War beginning in the early days, when M79 Grenadiers assigned to major Army divisions first arrived to see combat in Vietnam in 1965, including the 1st Cavalry Division, the 1st Infantry Division, the 101st Airborne Division, and the 173rd Airborne Brigade. Typically, one M79 Grenadier would be a member of each Infantry Fire Team (4-5 men), with two Fire Teams composing an Infantry Squad, headed by a Squad Leader.
However, its single-shot nature was a serious drawback. Reloading after every shot meant a slow rate of fire and an inability to keep up a constant volume of fire during a firefight. This led the Navy to develop the China Lake Grenade Launcher, which a were produced for deployed SEAL Teams. For close-in situations, the minimum arming range (the round travels 30 meters to arm itself) and the blast radius meant a grenadier had to use his .45 cal. pistol, or fire and hope that the grenade acted as a giant slow bullet. Special grenades for close-in fighting were created to compensate, though a soldier was not always able to load one in the heat of battle. Moreover, its size meant that a soldier with an M79 could be only a grenadier, and he used up his limited rounds, he had only a pistol to use in a firefight. Underbarrel grenade launchers, such as the XM148 and the M203, where the grenade launcher attaches to an M16 rifle, were developed during the Vietnam War, allowing the grenadier to function also as a rifleman. Some grenadiers opted to carry a slung M16 rifle in lieu of a pistol.
The XM148 was plagued with problems and the project was dropped. The M203 was a success, and was standardized in 1969; it had replaced the M79 by the end of the war, though M79s were still used in Reserve and National Guard units.
Some US Navy SEALs and Army Special Forces in Iraq have been seen using the M79 in recent years, due to its greater accuracy and range compared to the M203 (350m effective versus 150 m effective on the M203). The M79 has seen notable limited use during Operation Iraqi Freedom, such as for clearing IEDs
For close range fighting, two styles of M79 rounds were developed. The first was a flechette or Bee Hive round (so named for the sound the flechettes made while in flight) that fired 45 10-grain steel flechettes. Flechettes proved to be ineffective because they would often not hit point-first and penetrate. Instead they would hit sideways and bounce off. About 1966, this was replaced by the M576 buckshot round. Containing twenty 24-grain metal pellets (M576E1) or twenty-seven 24-grain metal pellets (M576E2), this round could be devastating at close ranges. However, as range increased, the shot spread out so rapidly as to be ineffective. The M576E2, despite the greater number of shot, was less effective at range than the M576E1, because its shot spread out much more quickly and could completely miss the target.
As if they improved after Vietnam I couldn't tell you for sure. Maybe a currently Veteran can tell me if the rounds had been improved...