This portion of Google "provides a simple way to broadly search for scholarly literature." Google has made arrangements with various publishers to search their databases (even if the works themselves are only available to subscribers). Like the regular Google, results are ranked by relevance, but in this case the rankings are influenced by scholarly factors such as the journal it appears in or the citations to it.
One very nice feature of Google Scholar is that it appears to be the only way for many economists to freely count their citations (Thomson Reuters' "Web of Science" is a fee-based service). Another very useful service is that users can set up e-mail alerts for new works as they appear in the database. Finally, with their "Advanced Search," one can restrict searches by broad fields.