I believe Google is building some sort of shared, public, semi-open virtuality with vast commercial possibilities, using their (browser) maps API and especially, Google Earth, as clients. Google maintains net-accessible servers for the geodata (satellite images, features and road data, etc). It seems most likely at this time that there are other geoservers that host other-layer data that Google does not control, but has partnered with (NASA, Panoramio, weather, etc). One of these servers is the "3D warehouse" that houses Google's "3D" building database. The 3d warehouse is also a portal for user created data structures, and deserves good investigation itself.
All GE clients come pre-configured to fetch from these geoservers, but additional geoservers can be added to each client easily.
The default GE install comprises a view of "the earth" as Google has configured it. We're all grownups; we can skip, here, the discussion on what real means, but given the map and sat image data GE displays the "real world" overlaid with fairly obvious synthetic overlays; roads, icons for parks, colored geographic air lines, Panoramio images, Wikipedia pages, etc. These irreal icons are meant to not pass as "real" features of the terrain, but to serve as meta-markers through which to access meta-data (eg. not in situ visual map and image data).
The 3D-building layer [may be off by default] is quite novel in this scheme Given the possibilities for creative use, it is most interesting that Google has severely restricted 3D depictions to exactly mimic existing human buildings in urban areas. Google specifically disallows creating 3D constructions that do not map to an existing physical structure. It is impossible to believe that other arrangements have not been explored at Google. Clearly, there is a plan.
Having followed the maps API and the maps.google.com function for some time, it's fairly obvious how GE use of 3D buildings in commercial real estate will work. With Google Maps, geo-targeted ads, entirely analogous to textually targeted ads in the search engine, appear on the map. There's the obvious business search and locate features. Clearly this will be extended to 3D GE space. Even following their existing ad model, traffic at 1 Market Street, San Francisco 94101 will generate a lot of correlated hits on GE and real estate.
The fact that construction of 3D objects on random places on earth is disallowed is not that surprising given a moment's thought. Overnight countless uncontrolled crazy constructions would appear, continent-sized shapes, or worse, algorithmically generated zillions of objects could appear at anywhere, at any time, rendering the "space" meaningless. Conservatism is a good idea here.
It was immediately obvious to me, before the appearance of Google Earth, that with the Maps API it was almost possible to create a shared virtual space for websites organized around a real location; hence my experiments with the Salton Sea area ("World Power Systems, 1001 Sea Port Drive, Thermal CA 92274"). Thermal CA has the virtue of being nearly unoccupied yet containing a dense gridwork of roads, with guessable street address numbers. Using Google Maps I was able to make my created location markers appear on "My Maps" when I merely browsed the area; unfortunately it takes non-default (but easy and documented settings) to make it work.
[more on maps API?]
When the 3D buildings overlay appeared on GE it was immediately obvious as well where this could be headed. To be blunt, I want in. Google's main goal has got to be commerce. The sheer amount of virtual construction needed to build a downtown lacks sufficient adjectives to describe the fantastic scale of effort required, but Google tends to think big, and the possibilities are immense -- Snow Crash style cyberspace in a browser. Google Earth will become the world.
I want to build my.our own cultural value in physically un-occupied space, probably in the Mojave Desert, on BLM land (someone does actually own the lots in Thermal). Google as yet won't let us (though we have not yet asked for special dispensation). In the short term, we can build private but publicly-accessible virtual space within our own geoserver. We can do subsets of that, mock-ups or end-result, using shared KML or possibly the maps API. But "real" deployment would require at least that it show up when GE's "3D buildings" layer is enabled -- which means that the data must be in the Google warehouse.
The decision to so severely restrict 3D placement seemed arbitrary and narrow at first, but it doesn't take much thought to realize what would happen if it were made wide open: continent-sized buildings, zillions of algorithmically generated micro buildings... slow is smart, there is no precedent, and it's all gain from here. Who knows where this will go, if anywhere; but if it does take off, I doubt Google wants to literally give the world away for free.