Yes, its useful for alignment. However, I've noticed that such alignment techniques are quite slow (since many of them resort to brute force on O(n^2) on sufficiently large strings - a few thousand maybe).
I've found that a better way to approach this problem is to use suffix arrays to generate the best overlaps (ranges) from the reference and then perform a "range compression" (not of the audible kind) to coalesce adjacent ranges that differ by very little and insert/delete the offending characters.
I'm using a similar technique for genome compression against a reference and am able to get a 700x compression on 2 Korean genomes and 130x compression on hg18(build 36.1) and another build/assembly(number 36.3) of the human reference genome.