I might have outdated info, but i used it a few years ago while i was studying abroad. You get 3 days within 2 months, and you write the date you're riding in a little space. Since I was there for 4 months, I had two passes. You only have to pay a supplement if you take a fast train, like the AVE, or you want an overnight bed. I think the supplements were $13 and $10 respectively, but it's probably different now with the exchange rate. You can take any train you want, but sometimes it's a good idea to have a reservation. You can gauge that for yourself, if you see a city is full of tourists, make a reservation on the train when you leave.
The biggest benefit, I thought, was that conductors seldom wanted to see the pass and weren't very interested in stamping it. A few of the conductors, when checking my ticket, told me not to bother writing the date in. So with six valid rail dates, I probably rode 15 times, and used the last date to take the AVE to Madrid for a day trip, just to finish up the pass. If it weren't for the free days, I don't think the pass would have been very cost-effective, because trains and busses (buses?) have pretty cheap point-to-point tickets.
Check out Rick Steves' page on this:
http://www.ricksteves.com/rail/spainport.htm His little map will help you figure out if the pass is a good value.