The calls are powered by Google Talk and Skype, more VOIP under the covers, via an agreement made this summer. They are free on both ends. That agreement also included discussion of interoperability between Skype and Google Talk, something we’re still waiting for.
You might remember that this program was the subject of one of the bizarre hacked messages posted on the official Google blog. Persons unknown wrote on the Google Blog in October that “We finally consider click-to-call agreement with e-Bay a monopolistic aproach [sic] that would damage small companies in the CRM area.”
Windows Live Local has offered click to call for some time. Local search is a potentially lucrative space that’s seeing a lot of innovation right now. Note also that the Google Local logo includes the outline of Africa, ironic given how awful that and other map search programs’ coverage of that continent is.