I hope this doesn't read as too much of an endorsement for Amazon, as its not intended to be, and certainly other eBook sellers such as Kobo and B&N will probably roll this out shortly, but the bottom line is that this is a significant upgrade.
You have always been able to share books from your Amazon account with someone else by linking multiple eReaders to the same account. The latest software release, however, allows you to load multiple accounts to the same reader. So presumably the idea is to have two eRreaders (one for each account), but allow each to share each others accounts without having to physically swapping the readers. So it is bringing the flexibility of just lending an paper to eBooks, at least within the family.
And yes, you still need two eReaders if you're reading the same book at the same time, but its better than having to have four eReaders (think about it).
The two paired accounts can also jointly supervise and control up to four child’s accounts, too.