First you have to enable sharing in iTunes by ticking "Share my Music" and "Share my entire library". Don't use a password. This will allow WiFiTunes to discover your iTunes library.
Install WiFiTunes, disconnect your USB cable and connect to your WiFi network. Then run WiFiTunes and tap the "Libraries" menu.
Select your library and wait for it to be downloaded. It can take a long time if you have a large library but don't worry it won't take this long next time because it saves the library to your PDA (as long as "Cache Libraries" in the Tools menu is ticked).
Now choose a playlist.
Choose a song and tap the play button. AAC songs won't appear because we can't play those type of files so choose a playlist that has some MP3s in it.
The bar you see moving along shows how much of the song has been downloaded. If the black diamond ever catches up with that progress bar it will stop playing. This can happen if there is congestion on your WiFi network caused by too many other users, or interference from other networks, cordless phones, microwave ovens etc.
Hopefully this guide has enough info to get your going. If you need more help you can post on the forum or feel free to send me an email.