As far as I'm aware Area Damage works like this:
You have a 20% flat chance to cause area damage to all enemies within 10 yards of your target.
This area damage doesn't itself crit, but if your initial hit that caused area damage was a crit, then the area damage will crit (without the yellow numbers).
You can increase this area damage by x% amount with paragon levels and stats on items.
The chance to cause area damage stays at the base flat rate of 20% and cannot be changed.
Area damage works off of all skills that hit a target.
I think the area damage only procs from your main hit on a target with any skill, but i could be wrong here so if anyone knows more on this side of things please post here and i'll edit this OP.
11/03/2014 08:27Posted by Zingy1914DoT skills like http://eu.battle.net/d3/en/class/barbarian/active/rend can proc multiple times over the duration of the skill.
Piercing skills like http://eu.battle.net/d3/en/class/demon-hunter/active/hungering-arrow can also proc multiple times
The damage is based on how much damage is dealt at time of impact.
12/03/2014 02:17Posted by jokeeeerSo if you have 100% area damage (possible with 50 paragon levels and items) and you crit something for lets say 3 million then you have 20% chance to deal 3 million damage to all enemies around that target.