If you are at all interested, Amazon's official directions on how to use this function are here; some excellent additional info is here on Mashable. Note that at present, it only works for Amazon's US customers (sorry, peadarog). But also note that you don't need an actual Kindle to lend or borrow a Kindle book; all you need is an Amazon account and a Kindle app (available for free on PC, Mac, iPad, Android, and even some Blackberries). In fact, even if you have a Kindle, lending and borrowing happens through the web, so you do need that access.
Lending an ebook has some similarity to lending a physical book (you can't read it while it's loaned out) but there are differences. The biggest is that publishers can turn off the feature entirely; and even if they haven't, you can only lend a given book once. Secondly, the loan period is for two weeks, which starts when the borrower downloads the book. I don't see this as entirely bad, because it forces the person to start reading right then. And the best part is, your friend can't forget to give you the book back! Two weeks after downloading it returns to your Kindle or Kindle app like a hungry homing pigeon.
This may not sound like much, but it's one more step in making ebooks mainstream. Call it a small wave, lifting the digital tide a little higher. Of course, the Nook has had book lending from Day One. Amazon has added it to stay competitive. Now if we could only get them to see that supporting ePub and library book lending is the best way to stay competitive, things would be great!