It performs pretty much as advertised using it on my iPhone 4. You can make and receive calls over either a WiFi network, or over the cellular network. Even better, the app works with a variety of Android phones including the Droid, HTC Hero, Evo and Nexus One so you're not stuck with just iPhone users.
When you get the app you register for a free account. Your name and email address is all that's needed, and the Tango contact list will instantly display friends who have signed up. Contacting them is as easy as clicking on their name. You have the choice to do an audio-only call or a video call. Both iPhone 4 cameras are supported, and just like FaceTime, you can switch cameras while a call is on progress.
How well does it work? I tried a call to an Android phone running Tango and it worked fine. An acid test was a call from a friend visiting China. He called me from the Great Wall, and the video was passable and audio was fine. He said he was in an area with intermittent 3G and Edge, and his connection kept switching, but given the conditions it did work well. If the Tango app notices network issues, it puts up a warning on screen. Eventually the video locked up and the call dropped, but it was better than expected under challenging international conditions.