Here is a direct link to an 8 minute long screencast which shows what the Blogging bundle can do (30 MB.)
In short the blogging bundle allows you to post, retrieve, and update entries. It can also preview entries before posting, upload images to your blog by dragging them into your document, etc.
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The bundle uses the MetaWeblog API and has so far been successfully tested with:
Update (2007-03-15): Many have asked why the Markdown they post is not converted. For that, you need to install a Markdown plug-in. If TextMate converted your Markdown before posting, it would be problematic to later fetch the post and edit it (as it would then be in HTML).