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I wrote a comprehensive article for Lullabot.com about Localized and Mufti-Lingual Content in Drupal 7 and the new and old translation systems and how they work.

The way that Drupal manages translations has been evolving over several versions of Drupal. It has always been somewhat daunting to figure out how to set up a multilingual site in Drupal, and it requires a combination of core and contributed modules to make it work well. In Drupal 7 we have some great new features, but we also ended up with two different systems of managing content translation, so there are also lots of new questions and options. If you're new to Drupal's multilingual system, or new to Drupal 7, you'll have lots of questions about how to get this working well.

To make this whole process easier I cover the following in this article:

Understanding the difference between interface and content translation
Discuss the two alternative systems for content translation in Drupal 7 and how they differ
Walk through the installation and set up of a D7 multilingual site
Provide an extensive list of modules, articles, and resources that may be helpfu