First off, make sure that the time on your phone is correctly set, or incense and lures will do nothing. I learned this the hard way, as I usually have my phone set 5 mins fast to ensure I'm never late for anything.
Lures spawn a mon every 5 minutes, for anyone whose radar circle thing touches at least the edge of the circle that shows around the pokestop.
You do not have to be in range to spin the pokestop to be able to collect lure spawns. Incense does the same, but just for the user, and is active even when walking around.
The actual spawn list seems to be random, more often than not we just get worms, rats and pidgeons, but sometimes a lure will spawn Magikarp, Poliwags, Venonats, Eevees, etc.
Can't figure it out, as when good spawns spawn, almost all spawns are worthwhile, or you just get 6 trash mons.