The iPod nano software has been updated to allow users to control their music with the Sleep/Wake button. Specifically, there are two options: you can set the Sleep/Wake button to either skip to the next track or pause/play the current track with a double-click. Once the update is installed, you'll find the option by tapping Settings, then Music and finally Sleep/Wake button.
Additionally, this update will let you turn the nano off completely. To do so, simply hold the Sleep/Wake button for a few seconds. Note that if you turn the nano back on within 5 minutes, it will remember the most recent playlist and what was playing. What a smart little device.
You'll find the the update by connecting your iPod nano to iTunes. Have fun!