Google are using Java (a derivative of the Apache Harmony implementation of Java) but compiling it to a different bytecode that runs on the Dalvik virtual machine.

Dalvik is very different from the JVM in a variety of fundamental ways. The Wikipedia article has plenty of info on this.

Oracle's patents are on many of the inner workings of the JVM. Java itself (the language) does not have many unique aspects which were patentable because Java is largely derivative from languages that came before it.

So basically (as I understand it), Android uses Java in a very superficial way, and the patent issues at hand are whether Dalvik infringes on Oracle patents on VM techniques.