Despite the name, Google Type isn't a real Google product. The site generates fonts based on Google image search, hence the name. You type in words, the site digs through image search and regenerates your text using image versions of each letter.
This is all based on an interesting quirk of Google's image search. If you type in a single letter and search images, Google gives you a lovely collection of image representations for that letter. For example, plug in "Y," and you may see the "Y" from "Yahoo," an illustration of a guy with his arms up in a "Y" shape, and a hand making the hang-loose sign. Any of these could pop up in Google Type.
Google Type is a project by a group called Internet Club, which seems to consist of Web developers in Brussels, Belgium. The group comes with the mysterious tagline: "Because Internet gave us so much we decided to give back."
The font generator comes out looking a lot like a ransom demand. You may even get a bouncing GIF in the mix. Punctuation is pretty sketchy, and you might get a giant dot for a period. That randomness is a big part of the fun, though.
There isn't a lot you can do with your message once it's translated into images. You can share it on Facebook or Twitter, but mostly it's just for amusement. It looks like Google Type is one of a number of planned projects. At least Internet Club is using its powers for good, not evil.