Why is Google doing this? Because the more powerful web applications become, the more important Google's search, browser and nascent OS become. More relevant to developers than some grand anti-Microsoft conspiracy, though, is that some serious UI sweetness may be forthcoming.
Here's what's being made available today:
The Closure Library is a collection of cross-browser, modular, "industrial strength" UI components from across the various Google properties. Rich text editor, DOM inspector, drag and drop ala Google Maps - you want it, you got it.
Also released are a number of high-efficiency Closure Templates.
Google's Amit Agarwal says that all of the above were originally built as "20% time" projects but then became fundamental parts of some of the most popular Google applications. Now these technologies can be used in building your apps, as well.
It will be interesting to see how these Google offerings stack up and get adopted compared to Yahoo's YUI library.