It compares the number of each type of word, and generates a graph of overall happiness, or lack thereof. One can also isolate the measures of either happiness or sadness. The data goes back as far as two years ago, but a lot more people are using Facebook — and status updates — these days so the most recent data appears the most illustrative. For now, this data only covers English-speaking users in the US, although that may change; similar polls are done by companies like Gallup, albeit using more traditional survey methods.
The results seem relatively obvious for right now. Lots of people were happy on Thanksgiving last year, for example. Less obvious results are also showing up. One of the saddest days of this year was when Michael Jackson died on June 25th. People also appeared pretty depressed on Labor Day, most likely due to the start of school for millions of Facebook users.