The core of what makes Google Earth possible is the Latitude/Longitude system on Earth. Latitude and Longitude make it possible to reference a precise point on earth by simply showing a pair of numbers. For example, the Google headquarters in Mountain View, California is located at 37.422°N 122.084°W. Enter that into the Google Earth search box and you’ll fly directly there.
Google Earth allows you to display the current lat/lon in a variety of ways. The format shown above is known as “decimal degrees” and you’re given a few other choices such as Universal Transverse Mercator.
Google’s KML system simply uses decimal coordinates, as these don’t require a cardinal direction with each one. Continuing with the example of the Google headquarters, their coordinates are simply -122.084,37.422, which makes KML management much easier.
To see the latitude and longitude lines in Google Earth, simply pull down the [View] menu at the top of the screen and select “grid”, which will look something like this:
To learn more about the intricacies of latitude and longitude, I suggest you take a look at the latitude and longitude pages on Wikipedia.
Being able to fly around and find your house in Google Earth is pretty neat, but what makes the program so powerful are all of the layers that are built in. These layers go from the basics such as [Borders and Labels] and [Roads], to fun and useful layers such as [3D Buildings] and [Weather], to educational layers like [Greenpeace] and [WaterAid].
In addition, the [Places] layer will highlight relevant locations in your area, and the [More] layer will let you fine-tune it further.
Frank wrote a great overview of layers a few years ago, which can help provide more depth into how they work. A few items from that article have changed (such as [Terrain] now being located in the [Tools] –> [Options] menu), but most of it is still very relevant.
If you want to experience the full power of Google Earth, take some time and explore the many amazing layers that are available for you to use.