Usually, in normal behavior, dogs chase their tail when they are excited, burning off excess energy while playing. This is not generally a problem unless it becomes obsessive behavior.
If the owner tries to distract the dog but it continues chasing it's tail, the dog may perceive this as positive reinforcement, because he finds it is one way of getting attention, so the tail chasing carries on.
Some breeds seem to develop this habit more often than others. Sometimes it can be caused through stress or just sheer boredom. Make sure your dog is getting enough exercise and try not to leave him alone for long periods. Separation anxiety can become a problem for a dog that is left alone regularly.
Some breeds seem to develop this habit more often than others. The Staffordshire Bull Terrier breed appears to be one that can develop this habit, but it can also be found in larger dogs who's tails may be easier for them to reach. This could be hereditary or just the playful tendencies of some dogs.
So tail chasing does not seem to be a serious problem with most dogs but if the habit persists even after you have exercised your dog regularly, ask your vet to see if your dog has any underlying neurological conditions.