Google's interface for archives is quite basic: there's a pane that shows some information about archives (number of files, size) and the list of files. If the file format is supported by Google Docs Viewer, you can open the file and view it in the browser.
"ZIP and RAR archives that are embedded inside other archives also work. For example, if you have a RAR file inside a ZIP file, you can just click on that file to access the embedded archive. This feature extends to Google Docs for mobile, too," informs Google.
For some reason, Google lists all the files from an archive and ignores folders. Google shows the relative path of each file, but that's not very useful. Another strange issue is that Google Docs Viewer doesn't let you open image files and text files without having to download them, even if these formats are supported by most browsers.
Hopefully, Google Docs will add support for other archive formats (7zip, tar, gzip, iso) and allow users to extract the files from an archive.