Google Docs is a great way for students to type and store documents. All students have an account that includes email and docs storage. The Documet portion is a full featured word processor that does about 90% of everything you would normally do in Word. I would not say it is a complete replacement, but does almost everything you need to do. Some of the greatest benefits to using Google docs are accessibility and colaboration. All of their files are available to them wherever they have internet, and Docs saves their work all the time. This keeps from loosing papers or not having access to their paper because it was in a different format at home. Collaboration is a very great benefit as multiple students can own a document which leads the way to peer editing and proofreading concepts.
Google Docs is not without faults. There are occasionally bugs in the sharing aspect (I currently have a bunch of documents that I can't delete.) Also, sometimes the page loads in a strange manner, or the curser acts oddly. Both of these things can be fixed very quickly by just refreshing the screen (F5.)
Here is a document by Richard Byrne at http://www.freetech4teachers.com over google tools.
Google for Teachers -