Well, I noticed this only recently. Today while adding a few photos to Picasa, I experienced the power of this feature myself. It could,
1. Detect almost all faces present in the images
2. Relate a number of detected photos and recognize they are photos of same person
3. Suggest close matches for most of the photos from already tagged photos.
The below image is a screenshot of google detecting almost all occurrences of my face from an album and suggesting that it is me! It has made a single mistake but that is the picture of one of my paternal uncle.
There was one more amazing factor. For every picture it was making some suggestions. The suggestions were mainly either a correct match or a person who is of close blood relation!
Well, I am not an expert in this field. But, I can see Google coming up with real image search in near future. Well done Google.