When you type "its", no English spell checker will ever find a mistake, but a smart spell checker will flag it when you add more words: "its a great idea". While "its" is actually an English word, it should be replaced with "it's" in that particular context.
The updated spell checking feature from Google Docs is more precise and it will usually show a single suggestion when you right-click a word that's highlighted. Another advantage is that it works well when you type proper nouns.
"Suggestions are constantly evolving. As Google crawls the web, we see new words, and if those new words become popular enough they'll automatically be included in our spell checker—even pop culture terms, like Skrillex," explains Google. That's the great thing about web services: they evolve faster and they can become smarter by bringing more data. Just like Gmail's spam filter is better than the spam filter of a desktop mail client and Google's online speech-to-text engine is better than any offline speech recognition software, the smart spell checker from Google Search and Google Docs (originally available in Google Wave) is better than any dictionary-based spell checker. There are some downsides (it doesn't work offline and everything you type is sent to Google's servers), but all Google services and software could be improved by switching to the online spell checker.
Unfortunately, the example I used back in 2009, when Google Wave added a context-sensitive spell checker, no longer works today. When you type: "Their coming too sea if its reel" in Google Docs, only "too" and "sea" are flagged, while no misspelled word is flagged in Google Search.
{ Thanks, Techdows. }