There will be a FaceTime button in the Contacts app and on on the Phone screen. Tapping it is all you need to do to initiate a video chat, even if you're already on a voice call. The recipient will get a message saying that a FaceTime session has been requested which can be accepted or rejected. Accept it, and you are video chatting.
Upon release, FaceTime will only work on WiFi connections since Jobs said that some details needed to be worked out with the cellular providers and eventually it will work on 3G connections as well. Jobs said that FaceTime is being taken to the standards bodies, starting tomorrow, in hopes that it can become an industry standard.
After hearing about this, and leaving Steve's reality distortion field, I got to wondering if this will be a popular feature. When I was 12 years old, I saw this technology introduced at the 1964/5 Worlds Fair in Flushing Meadows, NY at the AT&T Pavilion as Picturephones. If I recall properly, the Picturephone was a huge device with a tiny black and white screen that cost around $1200 each, and of course two were needed to talk to anyone. It was a major failure then, and was inexplicably later reintroduced in the early 70's with a huge monthly fee of $125 and an additional charge of $21 per minute. Please remember that this was many years before unlimited calling plans -- each phone call was individually priced and billed. It tanked again, and eventually AT&T had to write it off, taking a loss of somewhere around a billion dollars. It might have been the price that killed it, but I think there was more to it than that.
Back in 1964, I asked my mother if she would ever want to use a Picturephone and was told, "Gawd no!! I don't want to be seen in my curlers." Although many years have passed, I don't think that people have changed all that much. Just because something is a neat technology doesn't mean that people would want to use it. Even at no added cost I wouldn't use it for anything other than a novelty, since many times I don't want to be seen when on the phone. Sure, I can understand its use for special occasions, like when members of your family are traveling or infrequently chatting with friends who live on the other side of the world, but for day to day phone calls, I just can't see it. I don't consider myself "ready for my close-up" each time the phone rings and the majority of people I've spoken to over the years, feel the same.
Let's say that FaceTime does become a standard and is supported by just about all cellphones. Would you use it on a day-to-day basis or is your visual privacy worth more than the benefit, causing you to use the feature very infrequently if at all? For me, it would be a neat thing to have, but it probably won't become a major part of my life.