It's true, the Netflix VR app is ready for your compatible* Samsung phone and Gear VR headset (if you don't see it, try uninstalling and reinstalling the Oculus app), and has a virtual living room for you to chill in. Oculus CTO John Carmack worked with Netflix on the app, and in a post to the tech blog explained how it all comes together. Besides the technical details of how the app creates a screen inside a virtual environment, and includes controls for use while browsing or viewing, Carmack also explained one more thing: the streaming video in VR is limited to standard definition (720x480). According to Carmack, because the area you're actually looking at is only composed of so many pixels, 720p is the highest res video you should consider for VR right now. The reason he can't hit that mark? Content protection, aka DRM.
The Hollywood studios have very strict requirements about the path their content takes within the device, in order to prevent someone from making a high-quality copy directly from the stream. Because of the nature of how it's rendered in VR in order to blend with the virtual world, this stream doesn't quite cut it, and so it has to make do with a less-than-HD source feed. This isn't going to be the case with all video setups in virtual reality, as NextVR (behind the Oculus event stream and the upcoming Democratic Party debate VR stream with CNN) has DRM implemented on its streams for the Gear VR. Fox said its movies in the Oculus store would be in HD, and we'll be interested to see if they're available in HD on all devices.
So after all the pixel counting is done, the real question is -- how did it look? I gave it a shot on a Galaxy Note 4 plugged into the original Gear VR headset, and it was surprisingly good. The video stream was clear, and the virtual world actually did help settle me in. The resolution wasn't nearly as much of an issue as you would expect. While it's not the sharpest or highest quality looking stream, I saw very little artifacting, and decent color reproduction. Watching the racing documentary Gonchi, subtitles were perfectly clear and readable with no eye strain or any other problems.
RoadtoVRposted this video of the experience that should give you an idea of what it's like. In virtual reality, the screen seemed a lot like watching an 80-inch 1080p HDTV, and just like HDTVs that large, when you're up close you can start to make out pixels. There aren't any advanced features like group watching (perfect time to bring back the Xbox 360's old Movie Party feature, Netflix), but it can lose the virtual living room and go to "void mode" to save on battery. As for higher res, Netflix says it does not have "near term" plans to add HD streaming for VR because of "technical limitations there that could sacrifice a comfortable viewing experience."
John Carmack said he watched the entire season of Daredevil in VR for "testing" purposes. I'm not sure I would want to use it for that long, but mostly because of the weight of the first-gen Gear VR (the new unit unveiled yesterday is significantly lighter). It's hardly a replacement for an actual living room and big-screen TV, but Netflix VR is already good enough to fill in when that's just not an option.