Many people get atma's impaler on Dr.Mundo, don't be like them, that's stupid.
Most of his damage comes from Burning agony and his Infected cleavers anyway.
That's what the ~30Mpen is for(see squishies lose 1/4 of their hp by cleavering their *** once).
Don't get me wrong though, this isnt supposed to make Mundo a bursty damage dealer, just gives him an edge instead of solely being a damage soak.

A bit of everything goes a long way, the Magic pen runes are needed to maximize your damage output with the cleavers and burning agony.

Get all the health armor and MR u can, also anything that reduces damage.
I always get the 10% less time spent death thingy, it's a few seconds less being bored.

Max cleavers first, get ult when you can, max burning agony second, get masochism once at lvl 3 for some extra AD dmg.
This way you have the max damage output during your laning phase, and max dmg output for when the team battles get started. Just run around between the enemies with burning agony on and try to pick on their carries or the guys with the lowest Magic resist.

I used to think Heal on Mundo was rediculous, but hey when it takes them ages to get your health down even a teeny bit, getting 1/4th of it back with Heal makes your enemies rage even more. It's also fun for when people decide to towerdive you because you're ow so low health, just pop heal run around your tower and let em chase you, throwing cleavers whenever you can.
I get teleport because, ye Mundo goes where he pleases.

This build provides a highly tanky Mundo with decent damage output, providing close to 40% cooldown reduction (40% if you get the buff potions that cost 250gold), which let's you spawn cleavers and lets you activate Sadism 27 seconds after its effect stops (39 seconds -12 seconds that the ult runs = 27 seconds).
I advice you to jump in the center of the enemy group after you pop your ult and taking all their burst (you'll survive) and then let your team join in, you should only run away when you're extremely low. Try to focus their carries with cleavers and see their health melt away with burning agony.
Be an aggresive madman, 3 of their team dead? go tank a tower and get your teammates to help you get it down quickly, you dont need minions, towers hurt less than the minions did when you were level 1