Wow, the Google app engine is impressive. It took me 30 minutes to go from zero knowledge to a deployed app with persistent storage. Try it out, or see my source code.
There's a lot to digest. Put simply, Google App Engine lets you write webapps that use Google's scalable datastore, Google's bandwidth, and Google's CPU and provisioning. The appserver environment is the real thing; fully functional Python with some very mature looking APIs. App frameworks like Django even run on it, although integration with Google's datastore will take some doing. There's a lot of capability to work with.
The getting started experience is quite good, at least on Linux. Download 2.5 megs of SDK for a local replica of the hosted environment. Write your webapp just like you'd write a CGI, then deploy it locally and test. When you're satsified you just run a simple command to upload it live and you're done. Very clean.
Congratulations to Ryan and the rest of the team for getting this launched. They've worked hard a long time on this vision. They were just getting started when I left Google, and this project was the one thing so interesting that I was strongly tempted me to stick around. It's very exciting to see it live!