It only seems to work with geotagged pictures. I'm going to take some pictures this weekend that will intentionally exploit this new feature. The trouble is, I'll have to wait a few weeks to see the result. No web albums newer than the end of November seem to have had this feature enabled. Go to the Hackberry Mesa album to check it out for yourself. I hope this feature is added to Picasa some day.
This is like the "look around" feature on Panoramio (which doesn't seem to be applied to landscape photos) or Photosynth from Microsoft.