A very interesting concept, very similar to "Time Machine" but on application level. Currently not many applications support it which is only natural since Lion is still in Beta. If all applications take advantage of this feature daily work will be a lot more convient.
While you work on a document, the os will automatically create a version every hour for you or you can manually create one by selecting the "Save a Version" in the File menu.
In this example i just made random changes to a PDF document with the built in preview app.