It isn’t a public release, more of a soft launch with a preview available to 10,000 developers, but it’s a step in the right direction. Essentially what this service is offering is the ability to get your web apps hosted on Google’s servers.
You get 500MB of storage which is controlled by BigTable on Google’s own GFS file system. Then you get up to 10GB of data transfer daily (this might be a typing error, it might be per month, but I can’t find anything right now to contradict this number), which is a lot.
Google reckons that apps operating within these parameters should be able to get up to 5 million page views per month. Furthermore, apps operating within these parameters will be freely hosted, even when the App Engine goes public. The only downside is that right now Google is only supporting Python, but more languages are hopefully to come.