Google's plan here is brilliant, ambitious, and simple.
Google understands that they can never win against Apple or Microsoft in either hardware or end-user software, so they're playing to their own great strength: online services.
Google really wants to move everyday computing entirely online, where they have the clear upper-hand. But modern broadband simply isn't fast enough to pull that off, and current ISPs have little incentive to make their current services any faster.
So Google has decided to attack the very heart of their problem, and become an ISP itself, providing internet 100x faster at essentially the same price. They're almost certainly taking a huge financial loss with this endeavor, but to them it's an investment. Google might very well become the dominant ISP in the USA, but they probably don't care as long as they spur other ISPs to upgrade their own services.
If Google can make gigabit internet ubiquitous, then they will make the home-and-office hardware and software industries, which are largely dominated by Apple and Microsoft, mostly irrelevant. Our desktops, laptops, and eventually even smartphones will become simple dumb terminals through which we access a plethora of online services, of which the dominant provider will be Google. (And possibly also Facebook.)
I find the prospect of this happening very exciting, and it would probably be the most important development in personal computing since the personal computer. I do however worry that Google, a company which I currently love, could become a big monopoly and use their power to stifle competition. That would be bad for everyone.