How it works today in Flash Player 10.1
Flash Player 10.1 renders thousands of non z-buffered triangles at approximately 30 Hz. For true 3D, z-buffering is required. This refers to the management of image depth coordinates in three-dimensional (3-D) graphics models. It is very difficult to accomplish in real time due to the immense processing power required. Unlike X and Y coordinates where there is a physical boundary, Z coordinates can extend infinitely, although the range of human eye perception is somewhat limited.
You can spoof 3D effects today using the Flex attributes "rotationX, rotationY and rotationZ". Here is a project I made using a simple photo that moves it in 3 axis based on user input. This is not true 3D however.
The Adobe website on Molehill states: "With the new 3D APIs, developers can expect hundreds of thousands of z-buffered triangles to be rendered at HD resolution in full screen at around 60 Hz. Using the new 3D APIs in Flash Player and AIR will make it possible to deliver sophisticated 3D experiences across almost every computer and device connected to the Internet.
The 3D capabilities enabled by the new APIs will also be available to the broader developer community through popular ActionScript® 3D frameworks, such as Alternativa3D, Away3d, Flare3D, Sophie3D or Yogurt3D."
Probably the single best description is from Thibault's video embedded below. I cannot wait to get my hands on the technology!