How does jQuery implement hide() and show()
It uses display.
Edit: And from John Sheehan's comment on this answer, which I agree with:
You should go view the unpacked source anyway just to familiarize yourself with it
Edit 2: Comments have mentioned using Firebug to discover what is happening. Indeed, I actually went to the jQuery docs and used the Safari Web Inspector to see what happened on the hide() demo to be sure of my answer.
It uses display, and for this type of thing you can use Firebug to actually examine what happens to the DOM.