Tired of being what you want me to be
It was to teach you respect....
Ozai definitely gets the Crappiest Dad of the Year Award, primarily for the way he treats Zuko (although he's a jerk to everyone, really). First Ozai keeps Zuko out of the loop as far as war councils go; then, when Zuko finally attends one and expresses his opinion, his dad gets upset and says Zuko's dishonored him by speaking out of turn and must fight an agni kai (a firebender duel to the death). Zuko expects to be facing the general whose plan he objected to, but it turns out Ozai has decided to kick his own son's ass—which is easy, particularly since Zuko apologizes and refuses to fight his dad.
So Ozai nearly burns Zuko's face off and kicks him out of the Fire Nation.
It's not just that Ozai publically humiliates and injures his son; he also gives Zuko the idea that somehow Zuko could still earn his father's love—i.e., regain his "honor"—if he finds the Avatar. Ozai is a clever bastard, and he knows that giving Zuko this tiny, false sense of hope will be even more painful than simply banishing him. And it's this hope which really threatens to ruin Zuko's life.
It's interesting that, after the season two finale wherein Azula makes a big deal out of Zuko choosing sides and thereby choosing his destiny, Zuko doesn't feel complete until his dad tells him Zuko's redeemed himself (S03E01, "The Awakening"). In case you missed it the five thousand other times it was foreshadowed, that right there is a serious warning that Zuko's decision hasn't gotten him anywhere—he's still relying on his dad and their relationship to determine his worth.
Zuko does eventually come to realize that he needs to break away from his dad in order to be the person he needs to be. On the Day of Black Sun, Zuko confronts his father, telling him that the Avatar is still alive, and Zuko is leaving to help him take Ozai down and restore balance to the world. Sensing that he's losing his hold on Zuko, Ozai tempts his son by mentioning that his mother, who disappeared many years ago, is still alive...and then he tries (unsuccessfully) to kill Zuko (S03E11, "The Day of Black Sun, Part 2: The Eclipse").
The most interesting part of this scene, aside from Zuko's mad phat lightning redirecting skillz, is that Zuko shows a much greater understanding of the state of the war than Ozai. Zuko realizes that Ozai and his predecessors have tainted the honor of the Fire Nation, making it a country everyone fears and hates. Zuko's determined to put things right, and, after having been kept down so long by his father's manipulations, it's refreshing to see Zuko stand up to him and tell him what's what.
Despite all his confused, angry feelings about his father, Zuko ultimately leaves the big confrontation to Aang. Zuko warns Aang that he will need to kill Ozai, but Aang manages to defeat Ozai and take away his bending abilities without killing him (S03E21, "Sozin's Comet, Part 4: Avatar Aang").
So what happens to Ozai? Hard to say. Last we see of him, Zuko's got him locked up in prison and demands that Ozai tell him where Ursa is. Whether or not Ozai gives Zuko this info, and whether or not Zuko is able to find his mom, is open to interpretation. Which is pretty lame, but does bring up the possibility of some interesting fanfiction.
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