The new version of Google Docs sports considerable collaboration tools, as well as improved editing and formatting, a faster, more useful spreadsheet and new collaborative drawing software. It's a worthwhile upgrade to the web-based office suite, especially for those to whom collaboration is of vital importance. But because it no longer allows offline access to documents (for now), and because it's still not as powerful as Microsoft Office, it's not likely to knock Office off of its throne as king of the productivity suites.
It's likely no coincidence that this major update to Google Docs comes just before Microsoft finalises Office 2010. Based on what I saw when I reviewed the beta of Office 2010, this new version of Google Docs is far superior to the web-based version of Office. Those who want to collaborate on documents online will want to use Google Docs, while those who want the most powerful office suite will stay with Office.
Note that by default, current Google Docs users will still be presented with the old version of the web-based software. You have to actively turn on the new features.
To access the new version, when you're in your Docs list, click the Settings link on the upper right portion of the screen, select Document Settings, click the Editing link, then select the option "Create new text documents using the latest version of the document editor." Reverse those steps if you want to return to the older version of Google Docs.
Keep in mind that, when you create a document in the new version of Google Docs, from then on it will always open in that new version, even if you end up deciding to go back to the old version for creating new documents. In other words, once you create it in the new version, it will always open in the new version, no matter what your settings are.
This holds true even for documents created by other people. So if someone creates a document in the new version, and you haven't yet used the new version and haven't enabled it, when you open that document, it will still open in the new version. Also, if you're using the new version, you can edit documents created with the old version.
New tools for the word processor
Those who use their word processor for collaboration will be particularly pleased with this new version of Google Docs. Unlike in the previous version, you can see the changes that people make in real time as they type. When someone else is typing in a document, a coloured cursor moves as they make the changes (each person gets their own colour), with the person's name above the cursor.
The other major change for collaborators is that you can now chat as you work on a document. When other people are working on the same document as you, you're shown a list of names on the upper right portion of the screen. Click the down arrow next to a name or names, and a chat sidebar opens that includes a list of all the people working on the document (again, color-coded) and displays an area where you can type to chat and see other people's chats.
These two collaboration features were previously available in the Google Docs spreadsheet, but not its word processor. They may not seem significant, but taken together, they're a major step forward in true collaboration.
There are other useful changes to the word processor as well. Google Doc's word processor has always been severely underpowered compared to Word. This new version is still not nearly as powerful, but some very important features have been added.
Key among these are a ruler and tab stops, making it far easier to create proper margins and to format documents. There have also been several other tweaks, including better handling of comments and images in documents.