Latitude will give a basic whereabouts indicated by a blue circle. This is mostly coarse location data gathered from cellular towers and nearby wifi MAC table lookups with varying degree of accuracy. If there are enough familiar WiFi hotspots that were picked up earlier by the Google Street View cars and/or other Android devices with GPS active in that area recently the location can be narrowed down to 500-1500ft indicated by a small blue circle around the person you are tracking. In more rural areas cell tower location is used instead and the circle can cover several miles only indicating what area of a city they are presently.
Latitude will only provide a real location if there is another app using the GPS such as Google Maps. You can ping the user to 'Check In' prompting them to open their maps thus activating their GPS.
You can also get Seekdroid if you want to remotely activate the GPS to get a more accurate location. Once the GPS is activated their Latitude location is update more accurately in the background. Seekdroid will keep it active for about 5 minutes. I've used if for a couple years now on my small fleet of Droids.
Setup is a bit of a pain since the v2 update, but once you get them all added you can access a log of the last 10 calls, battery level, get location, remotely lock or wipe the device via the website or by sending a text with a keyword you specify. It is a very lightweight app compared with using a virus scanner.
Another great app for activating GPS, lock, and wipe via SMS is Where's My Droid.