update: it works, but only in conjunction with other users having trackback set up as well. I tried it out at Wendy's blog and created the entry to the right titled "testing trackback". If you go over to Wendy's entry for September 12, you'll see that she has one trackback indicated for this entry. Click on the trackback link and you'll see an excerpt of my post that I made in response to her post. If other bloggers used trackback to post an update on their page in relation to Wendy's entry, you would see those there as well.

The best description that I ran across is that it's sort of like remote commenting. A pretty powerful feature if done with the coordination of your blogging friends.

Some links to learn about the Trackback feature:

How Trackback Works
Trackback for Beginners

There are tools that have been written to send trackbacks for blog tools that don't support it.

And an overview of some reasons why the trackback feature is not widely used.