I feel a little funny explaining Writely when I am only beginning to explore how to use it, but I have been asked what makes Writely different from a word processor, and I need to respond.
The easiest way to explain it is to ask a question: What is the difference between a blog and a paper journal? You can express yourself and your ideas in a journal. Why bother with a blog? The answer, quite obviously to anyone reading this, is that a blog encourages interaction. It brings people together and can deepen our knowledge and understanding as we enter into dialogue about our ideas.
A word processor allows students to record their ideas, to edit their writing, to produce papers that they will, in turn, submit to instructors for grading. Writely allows for those same things, but it also makes it easier for students to work together on things. They can submit parts of a project and it will all be instantly available to any member of the group. Once again, it is the ease of interaction that sets Writely apart.
I am sure I am not really doing Writely justice. As I said, I am just beginning to explore how I can use it with my students. Ask me in a year, and I will probably have a much better answer. For now, though, I just recommend that you look at it and see what uses you can come up with!