Automatic email translations have been available on Google Mail for some time as parts of Gmail Labs. Users who have activated the feature in their account, were able to make use of Google Translate to translate foreign language emails directly in Gmail. The new feature is currently being rolled out, and should be available to all users in the next couple of days.
You can check out if it is already enabled for your Gmail account by opening a foreign language email in your account. When you do that you will notice that a new line has been added to the email header. You see the original language the email has been written in and the suggested language for the translate job, as well as the translate message action link, and an option to turn off translations for that particular message.
Once you click on the Translate message link the email gets translated right on the screen, with only the email body and subject being translated in the process. You can go back to the original message at any time, or configure Gmail to always translate the language in emails.
You can manually change the source and destination language, which may be useful if Gmail identified the wrong language, or if you want the translation in a different language than the interface language. This also explains how the decision is made to display the translation header in the Gmail interface. It appears that this is solely based on the interface language, and no other parameters like the browser language or language of the operating system.
You can switch the interface language if you want all foreign language emails translated into a different language of your choosing. Gmail is also remembering the last selection that you have made in this regard, so that you can always select a different language to translate in on the fly.
If you have selected to always translate a particular language, you get the option to turn off that preference again when you open an email written in that language on Gmail.
Some messages are also displayed a translate option in the upper right message corner, which translate the message on another page.