How does it know who you know? Based on some very simple information you may have entered into your Google profile. (I called this two-way search in July 2009.)
For example, in my profile, I told it that I have a blog, am on Twitter, FriendFeed, run opml.org, have Flickr, Identi.ca, Picasa and YouTube accounts and OpenID. From there, it presumably either crawls or makes API calls to find out who I'm connected to and what I care about. There's a wealth of information about me just in the links on scripting.com.
It's good for the web because it puts all the social services on the same open playing field. If I want to add another service, I can put it in the list, and I can tell them how important it is to me by moving it up or down the list. It also makes sense for Google to throw its lot in with the web because they aren't Twitter or Facebook, and they got their start by indexing the open web. No matter what their motivations, that's for God to judge. Good is good. And good is not evil. ">
If you have an account on Google, you can edit your profile here.