Apple support document about FileVault 2. They really were thinking a lot about this it seems. You get a key that you can use to decrypt the drive in case you forget your password. This password can be stored with Apple and you can set three security questions to retrieve this key.
Encryption is done on-the-fly, as is decryption. I wonder how that is working exactly. In the previous FileVault you had to have at least the same amount of disk space available as the amount of data the FileVault data occupied to decrypt. If they allow you to turn FileVault on and off as you like, then that’s another kudos to Apple.