I'll be writing and adding a bunch of documentation this week (Elastic is a Summer of Code project, and this is the final week).
Installation instructions and frequently asked questions are now available on the download page. Screenshots will be added soon.
Themes are saved into the themes folder, and are complete WordPress themes. However, the theme editor can only edit themes that it has created.
The download page now has a (slightly) clearer description the editor. In a nutshell: Elastic allows the user to create and edit themes by breaking themes down into pieces which can be dragged around a canvas. The user can also customize other parts of their theme, such as the typography (additional customizations are in development).
For the moment, Elastic has not been tested with WPMU.
Elastic isn't that similar to the Theme Options plugin. While Theme Options provides users a way of managing and editing code snippets, Elastic provides users with a way to customize a theme without writing any code.
Hope this answered your questions.