Speed, simplicity and security are the key aspects of Google Chrome OS. We're designing the OS to be fast and lightweight, to start up and get you onto the web in a few seconds. The user interface is minimal to stay out of your way, and most of the user experience takes place on the web. And as we did for the Google Chrome browser, we are going back to the basics and completely redesigning the underlying security architecture of the OS so that users don't have to deal with viruses, malware and security updates. It should just work.
Let's get one thing straight though, this isn't Google going after Microsoft. Their OS will be lightweight, it runs on a Linux kernel so won't support many Windows apps, if any, and it primarily aimed at being a quick way to get to using a browser. This isn't new, ASUS have their own OS, based on Linux, which boots in something like 7 seconds so you can use some basic apps.
This isn't going to replace Windows, not by a long shot, and it won't touch any of the server platforms either, so Microsoft aren't going to worry too much. It's compete in the netbook market, yes. It'll be great for sticking on old machines (I have a 5-year-old laptop that runs a streamlined version of XP and dual boots with Windows 7 so I can boot in under 30 seconds if I want to check something quickly), but this won't have the power or flexibility to replace Windows or OS X on a desktop machine or normal laptop.
On the other hand, I think we're going to see a lot more smaller computers popping up in a variety of places (in multi-purpose touch-screen frames where they can stream video, show the weather and latest news that you can stick in any room in the house) and a light-weight OS will be needed for these, will it be Google Chrome OS, probably not. A nice idea, a great headline grabber, but like Chrome, which has <2% market share, I don't expect this to steal too much away from established OSs.
Read other articles about it on the BBC, New York Times and Ars Technica.