How does Intel Turbo Boost Technology improve performance on the new Core i5, i7 series of chips?

Turbo Boost can increase the clock speed of each core individually to get more performance out of the chip.

Basically, if the current application workload isn't keeping all four cores fully busy and pushing right up against the chip's TDP (Thermal Design Power) limit, Turbo Boost can increase the clock speed of each core individually to get more performance out of the chip.

Example: For the Core i7-920XM, that maximum speed bin is 3.2GHz, not the 2GHz value which is marked on the part. In principle, the 920XM could run all of its cores at 3.2GHz all the time if enough power was available and if the heat sink could keep the chip cool. (This is why Turbo Boost isn't like consumer overclocking: the chip is operating within its design specifications at all times.)

Read the full article:

Explaining Intel's Turbo Boost technology

Are we likely to need better power supplies and even bigger heat sinks and fans with these new chips?

I suppose, if you improve cooling you can push the limits further with Turbo Boost, as it is linked to the thermal design specifications.

The real use case for Turbo Boost is when you are using an application that does not make use of more than one core. At that point the CPU can turn off (or slow down) all cores but one, and increase the clock speed of the one core that is doing all the work, so making your application go significantly faster.

Using the example quoted by Molly, "For the Core i7-920XM, that maximum speed bin is 3.2GHz, not the 2GHz value which is marked on the part" - this means your single-core-using application would get a 60% speed boost. And because the other cores are switched off, the total amount of heat generated won't go up.

Given that the majority of desktop application still (2010) don't use more than one core, if they even use more than one thread, this is definitely a useful technology.