This article has been all over the news. I've been thinking that this was in the works about six months ago when Google Earth came out. I'm not sure whether the pics are real or not, however. Speculation, of course, but I tend to think that Google as a part of it mobile strategy intends to focus on organizing information between contexts. No longer do you have to look up an address on maps first, print out the directions, and go. No longer will you have to transfer that information between contexts onto paper and then electronically again.
Beyond that, you can find and advertise things in the real world with the google nav system. If augmented reality takes off, I think that Google will be positioned to be the medium in which to make money off of advertising when users are searching for places to eat, gas stations, etc while they're cruising in their cars.