The option works well and it even supports multiple calendar, but there's an important issue: ActiveSync lets you add a single alarm and Google Calendar converts each alarm to a "pop-up notification". That means you can't receive SMS notifications or email notifications when you create events from your phone.
Fortunately, there's another way to sync iPhone's calendar with Google Calendar: CalDav. It's limited to one calendar for each account *, it doesn't support push updates, and it only works with iPhone OS 3.0, but at least you can use the default notifications from Google Calendar. If you haven't changed your default notification settings, this help page explains how to change them.
Here's an interesting comparison between ActiveSync and CalDav:
Google Sync (ActiveSync)
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Pros
-Supports Push to devices
-Supported by iPhone
-Supports multiple calendars within one account
Cons
-Can only have one ActiveSync account set up on iPhone at one time
-Can't choose calendar colour
-Not currently supported by iCal (will be in Snow Leopard)
CalDAV
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Pros
-Supported by iPhone, iCal and other clients
-Supports multiple calendars within one account (use /user on iPhone)
-Allows control over calendar color, and color syncs across accounts
Cons
-Doesn't push updates. Fetch only
-Setting up multiple accounts is a bit clumsy compared with ActiveSync, and they appear as separate services in the iPhone settings and "choose calendar" views.
* Even if it appears that the CalDav sync is limited to your main calendar, you can add multiple calendars. The process is tedious, but it can be simplified by installing a configuration utility.