You set the target level (including Penetration) and make your roll. If your roll exceed the target level, you spend 1 Fatigue level as usual. If your roll comes up short, you spend one additional Fatigue level for each five points missing (or fraction).
Your spell always reaches the target level. The only way it can fail to go off is if your roll is so poor that you don't have enough Fatigue levels, suffer a fatal Wound and still come short.
This part is not so clear, because the description of the virtue never actually says it works this way. In particular, it never says you reach the target level - and certainly not that you reach it exactly, nor what happens with the spell if you do kill yourself. Also, if it works like you say, you can never come short.
Supposed to be a major Virtue, but if read literally it is more like a flaw.
You declare the level of effect you want, you roll your die, and if you did not reach the wanted level of effect you lose fatigue and can even kill yourself.
And that is all it says in the description of how the virtue works.
Nothing there about the spell succeeding.
No doubt the intention was that the lost fatigue would somehow help with reaching the wanted level of effect - and perhaps surpass it, but whoever wrote the virtue forgot to include that part.
As a side note - if LLSM always boosts your casting total to exactly the desired target level (except when you rolled above it to start with) it can be used to nicely mitigate the Chaotic Magic flaw most of the time.
I suppose that, if you read the first sentence "You can do more with spontaneous magic than most magi at the cost of your own life energy" as merely fluff, and not as an indication of the rest of the virtue which describes how much life energy you need to spend in order to "do more", then yes, I suppose the virtue isn't clear because it doesn't remind you that you succeeded at doing more if you're not dead. I don't read it as fluff, and read the rest of the text as the price that you're paying to achieve the goal you set for yourself. I do agree there's some room for interpretation here, such as what happens if you kill yourself while trying to produce an effect.
Nice catch there. This is true if you're spending extra stamina to meet the intended level most of the time (which gets tiring very fast). But Chaotic Magic would still apply when you undershoot what you roll for.