Via Ricardo Vidal: Mendeley seems to be a Windows (plus Mac/Linux) equivalent of Mekentosj Papers (which is Mac OS X only, and has been described as "iTunes for your papers"). In addition to handling your PDFs, it has an online component that allows sharing your papers and other Web 2.0 features (billing itself as "Last.fm for papers").
Here, I'm reviewing the Mac beta version (0.5.6). I am focusing most on the desktop side and compare it to Papers, because I have a working solution in place and I would only switch to Mendeley if the experience is as good as with Papers. (I.e., my main problem is off-line papers management, Web 2.0 features are icing on the cake.)
By Mac standards, the app is quite ugly. Both Mendeley and Papers allow full-text PDF searches, which is important if you want to avoid tagging/categorizing all your papers. Papers can show PDFs in the main window, copy the reference of the paper and email papers. Mendeley in principle can also copy the reference, but special characters are transformed to gibberish in this beta version. Papers allows you to match papers against PubMed, Web of Science etc., while Mendeley only offers to auto-extract often incomplete meta-data. This matching feature is extremely useful as you get all the authorative data from the source, and most often Papers can use the DOI in the PDF to immeadiately give you the correct reference. Update: Mendeley also uses DOIs to retrieve the correct metadata, if available. (Thanks, Victor for your comment.)
The beta version is quite rough, I just had to kill it because I found no way to close the "about" window. Extraction of meta-data and references doesn't always work, but this might be more of a problem of the information that's stored in the PDFs.
Of course, once there's a critical mass of people using Mendeley, there'll be all the Web 2.0 features that Papers doesn't have. Judging from the talk I think they might be trying to do too much: Connotea/CiteULike plus Dopplr plus LinkedIn. For me, a simple way to export new references from Papers to Connotea/CiteULike would be enough. More modularity is better, because it allows you to choose the best tool in each layer.
More info by the Mendely folks: Short demo, a little longer talk.