How does it work or how do I use it?
The second question is easier to answer without knowing the technical details of how your devices report where they currently are to Apple.
You need to enable Find my iPhone/iPad under a Mobile Me account in Settings->Mail. If you don't have a Mobile Me account, you can get one for free here. Use your iTunes email address for the easiest way to remember this one.
Once you have enabled Mobile Me Find my iDevice, then when you run the Find iPhone App on your iPad, iPhone or through the me.com website, you log into your Mobile Me account and it will display where it believes your devices are.
If you are offline, it may not be able to display anything, but when you do come back online it will send you an email and tell you that it found you.
You can remote WIPE, LOCK or send a message and sound to your device to help you locate it.
Recently it was able to help a friend find her lost iPod Touch - which it turns out was in the back seat of her car. It located the device because it automatically connected to the Wifi network at Starbucks from the parking lot... and sent her email saying it was "found" while she was having coffee there...