I posted this in another thread, but I think it bears a reprint.
My son is 7 and has an iPod Touch. His grandparents live 4 states away and they have an iPad. Prior to this setup, they spoke on the phone regularly but it was an "event" thing. He'd call them once a week or they'd call him and they'd just chat. Normal stuff, he'd answer a few questions, ask a few, that was it.
With Facetime, especially with his own iPod Touch, he's Facetiming the granparents several times per day. Visual communications seems to be so much more enriching to him. He'll call them to show them something he's drawn, a grade he made on a test at school, a little-boy craft project, whatever. Its went from the weekly calls to nan and pop to a daily show-and-tell.
Sure he could have been doing this via Skype or any number of other video conferencing solutions. But with an iPod Touch and an iPad, its finger press and then they are visually (and emotionally) connected. That empowerment factor for these parties (neither of whom are technical) is the 'magic' of Facetime for me. Its not that Apple gave us something revolutionary....they just gave us something that is simple to use.
Its still got bugs....we get drops all the time. But even with warts, I've found a 'killer app' with Facetime. YMMV of course.