The xn--… stuff is the real URL as it exists in the DNS.

Conversion to/from the user’s script is supposed to be done by the browser.

This has existed for quite a while, the new thing is that previously the TLD (i.e. country code) still had to be the old ASCII ISO code. Now even the TLD can be encoded, so that it will display in the country’s native script. So far there are 3 non-ASCII TLDs registered (that is, in the DNS they are still ASCII using puny coding).

http://en.wikipedia.org/wiki/Puny_code

If the link works, but your browser's address bar shows the wire form with "xn--" in it, it is due to the browser's security policy. For example, Firefox will only display IDNs correctly for TLDs they approve of: http://www.mozilla.org/projects/security/tld-idn-policy-list...

That is how Internationalized Domain Names (http://en.wikipedia.org/wiki/Internationalized_domain_name) are encoded by the browser and/or OS to get around the fact that a lot of legacy systems assumed only ASCII characters would ever be used. There's RFCs that cover this which have been around for a number of years. Today is hardly the first day these have been live. (Correction: Doing this for the TLD is new.) On Twitter, various URL shorteners have started becoming popular which are using non-ASCII characters in the domain names.

Related: I recently put together a package for iPhone developers that adds some support for IDN to NSURL (this code will be deployed in the next update of Twitterrific for iPad). http://files.iconfactory.net/sean/NSURL+IFUnicodeURL/

Opera displays it with the actual characters.

From TFA:

Icann warned that the internationalised domain names (IDNs), as they are known, would also not work on all PCs immediately.

"You may see a mangled string of letters and numbers, and perhaps some percent signs or a couple of "xn--"s mixed into the address bar," said Mr Davies. "Or it may not work at all."

Works in Safari.

That's the first of the translate feature I've seen (trying Chrome 5 beta as my primary), didn't work for me on that page though - internal server error.