From the Google sightseer newsletter:
Starting with Picasa version 2.5, Picasa allows you to use Google Earth to quickly locate (or geotag) the place your photos were taken. You can then create a map in Google Earth to share your photos with your friends. The process is really simple. Once you have your photos in Picasa, simply select a group of photos you want to locate. Then choose the "Tools ->Geotag with Google Earth" option. Google Earth will open and a small window with thumbnails of your photos appears. Find the location where the photo was taken in Google Earth using search, or by moving to it with your mouse. Zoom in as close as you need to identify the location. Finally, select the "Geotag" button. You can also select a group of photos taken at the same location and choose the "Geotag All" option. The location information is stored in a standardized fashion in the photo file itself.
qv: Picasa, Google Earth