For the most part, it did a good job of finding related songs. It was stretched a bit when I selected Ray Steven's "The Streak" since Apple doesn't recognize that much of the output of folks like The Great Lukeski, Tom Smith and the Bohnhoffs would be appropriate matches, so it only found 10 instead of the requisite 75 songs to match.
However, I had one complete failure. I selected a song from the soundtrack to A Mighty Wind, and asked for a playlist. It gave me 75 songs, but instead of stuff by Peter Paul and Marry and The Kingston Trio I'd have matched, it matched songs from other soundtrack and cast recording albums. Clearly since Apple considers this a soundtrack album the tracks on it must match other soundtrack tracks.
One good thing I noticed is that if I selected a piece of older jazz (Carlie Parker's recording of "Confirmation"), it matched to more of the older jazz and some Big Band and modern jazz, but when I selected a more recent piece it matched more of the recent jazz, but still included older jazz. Based on the results, I suspect that it includes big band (Glenn Miller, et. al.) with the older jazz recordings since it mixed those fairly freely. I also noticed when I selected a track by The Manhattan Transfer it matched to more vocal jazz than instrumental jazz. In these cases it was also fairly good about selecting pop tracks that were really, or were close to being, jazz.
It also did pretty well when I got a genius mix for "Kanon in D" (more commonly referred to as "Pachelbel's Cannon") by selecting mostly classical music with some tracks that blend well with classical.
Overall, based on today's playing I'd give iTune's genius feature a B or B+. Not perfect but as good or better than some human created groupings.