"We have been able to accomplish this by making a compact representation of the building facade and road geometry for all the Street View panoramas using laser point clouds and differences between consecutive pictures. As you move your mouse within Street View, you'll notice that the cursor now has lightly-shaded geometry attached to it - it will show an oval when your mouse is following a road and a rectangle when moving across the facades of buildings," explains Google. The cursor geometry is called "pancake" and it's a shortcut for the best image that shows the object you've selected.
While the new feature is moderately useful, it's very annoying when panning the image. You're almost afraid to click on the image because the zooming icon suggests that you are about to zoom in. I'll use the keyboard shortcuts to navigate through Street View from now on: up/down/left/right arrows, Page Up, Page Down, +/- for zooming.