The current state of the law in a nutshell:
The Criminal Code prohibits gambling in a public place. The Criminal Code itself does not define gambling, but opinion on the issue has defined it as occurring when parties engage in activities in which the creation of a debt is conditioned on an uncertain condition. This has been interpreted to include a broad scope of activities ands cover the placing and taking of bets.
The relevant Article for the prohibition of gambling is Article 266 of the Criminal Code. It provides that a person who gambles in a "public" place or a "place" open to the public shall be punished unless the item for which he gambles is one to provide temporary amusement - the case of a "friendly wager". What is a "public" place or a "place" open to the public has been subject to much discussion by the courts and authorities here: and for example, gambling online from your home on an offshore website has seen people detained/arrested in Taiwan. The hosting of gambling will trigger Article 268 of the Criminal Code. This Article provides that an individual who for the purposes of gain furnishes a location for gambling or assembles persons to gamble shall be punished.
Recent high profile criminal conviction for running a poker tournament: http://goo.gl/2gOWj
(Chinese only) The original case goes back a few years.
The draft of the Gaming Act - this will regulate casinos and gambling in Taiwan - should make its way to the Legislative Yuan this year. It will not legalize behavior currently prohibited but it will provide the legal and regulatory regime for the proposed offshore casinos, allow a framework for future changes, and likely clarify prohibited behavior further.
That is the state of the law here anyway.