It says one card and not what type of card. So you can just set a Spell or Trap card to activate this card's effect. And after the Battle Phase you can just set it again.
You can also use this effect to return a monster or other card you don't want destroyed.
Use this card with "Big Bang Shot" and equip it to your opponent's monster. Declare an attack with this card and return "Big Bang Shot" to your hand to banish the equipped monster. This would cause a replay to occur, so you can target a different monster, OR if the banished monster was their only monster, you can attack directly.
This card works well with "Safe Zone". You can use it on an opponent's monster and have "Falcon" return it to your hand when it attacks. "Safe Zone" leaves the field, destroying the opponent's monster, giving you a replay attack with "Falcon". Then "Safe Zone" can be used again next turn, even to protect "Falcon".
If your opponent summoned "Lava Golem" to your field and activated "Mask of Restrict", you can use this card to return the "Lava Golem" on your side of the field to your opponent and "Mask of Restrict" would prevent your opponent from re-summoning "Lava Golem". If your opponent had also activated "Nightmare Wheel" to stop "Lava Golem" from attacking, that card will also be destroyed in the process.
Use either of those Traps to Special Summon "Dragunity Darkspear" from your Graveyard, then Tribute it to Special Summon this card from your Graveyard. Attack by bouncing "Call"/"Reverse", and you can use them again later. Since "Darkspear" is on the Graveyard again, you can basically revive Falcon as many times you need to.
This card can work well with a "Crystal Beast" deck. It can be used to return a "Crystal Beast Sapphire Pegasus" from your Spell/Trap zone to your hand, allowing you to Normal Summon it, and get another "Crystal Beast" monster card in your Spell/Trap zone to replace it. Also, if you have already drawn a card with the effect of "Ancient City - Rainbow Ruins", you can return it to your hand, then play it again in main phase 2 to draw another card.
This card works very well with "Card Guard", once it's sent back to your hand you will be able to use it's effect once you summon it again to gain another Guard Counter on another valuable card to your side of the field.
While "Divine Wind of Mist Valley" is on the field, you can use the effect of "Mist Valley Falcon" to return a WIND monster to your hand to Special Summon a Level 3 WIND Tuner from your deck. Then, Synchro Summon "Mist Valley Thunder Lord" and use its effect to return "Divine Wind of Mist Valley" to your hand, and repeat the whole thing again to Special Summon or Synchro Summon more monsters.
Use this card to send back "Breaker the Magical Warrior" once it has exhausted its only Spell Counter, returning it to the hand so you can Normal Summon it again later, allowing it to regain the Spell Counter so it can destroy one Spell/Trap card. When this card needs to attack, just send "Breaker" back to repeat the cycle.