(note: don't you love how App is a word now? can we update the spell checkers to include it already?)
I think TechCrunch had a very good review of what the Google App Engine is and is worth a read but I think these 2 paragraphs sum it up best:
"Google isn’t just talking about hosting applications in the cloud any more. Tonight at 9pm PT they’re launching Google App Engine (Update: The site is live), an ambitious new project that offers a full-stack, hosted, automatically scalable web application platform. It consists of Python application servers, BigTable database access (anticipated here and here) and GFS data store services. The post goes on to define the fundamental differences between Amazon's offer by describing the Google App Engine as a complete and connected solution (all you can eat) instead of al a cart.
These services fundamentally are enablers to developers and entrepreneurs as they can resolve core issues with scalability and cost. What they enable is the ability to grow user base and data stores without having to build a game plan for adding servers.
Our experience with Amazon's Web Services to date has proven to be limited to large data sets that don't require immediacy of delivery. They are great for building large data queries and storing lost of data, but lack the ability to deliver dynamically. Will Google's approach be different? Time will tell but I am intrigued with the fact that its a solution that is connected at the platform level, this may resolve latency issues and support Social Web app's..........
Time will tell if Google's model wins this game or not, but developer and entrpreneurs have a new tool to leverage and that's pretty cool.