Nancy
Yes, it is genetic (passed on). Any dog w/ patellar luxation shouldn't be bred. Breeding out the genetic defects (with Luxating Patella, Legg Perthes and Liver shunt) is KEY in successful and responsible breeder. Luxating Patella can be crippling to small dogs and the surgery is very expensive, so YES, it would affect a "family pet".
"Uncorrected, the patellar ridges will wear, the groove will become even shallower and the dog will become progressively more lame. Arthritis will prematurely affect the joint, causing a permanently swollen knee with poor mobility. Therefore, a good evaluation needs to be done by your veterinarian early in the condition to prevent long-term arthritic crippling."
http://www.peteducation.com/article....&articleid=457
Essentially, luxating patella is the knee cap continually slipping out of place, which is pretty unlikely to be caused by some kind of accident like being stepped on.
Here are some helpful links:
Legg:
http://www.leggperthes.com/
Shunt:
http://www.livershunt.com/
Luxating Patella:
http://www.offa.org/patluxinfo.html
please don't breed any dog with patellar luxation.