How does Starcraft 2's matchmaking system work?

The matchmaking system attempts to place you into matches at or near your skill level, after you've been initially evaluated by the 5 placement matches. It then maintains a few scores of your performance (based around wins/losses, and recent streak) and places you against players of a similar skill level.

I personally found the matchmaking in the beta to be quite accurate, matching me to players of my fairly average skill level. The more matches you play, the more accurate the matchmaking system seems to become; my first match after placement was a cakewalk, while the next few matches were more edge-of-your-seat types of matches.

If you want more in-depth information into the matchmaking system, the best place to look seems to be the Battle.net Leagues article on the TeamLiquid wiki.

Edit:
There's also a thread on the TeamLiquid forums titled SC2 Ladder Analysis which has a fairly comprehensive write-up of bnet2.0 matchmaking.