On the iOS device on the lock screen you will have an icon indicating the app that is being used on the Mac. On the Mac, you will have an additional dock separate from the main dock indicating what is running on the iOS device.
When signed into the same iCloud account and Bluetooth is turned on, Handoff will allow you to transition your work flow from one device to another. So for example you start writing a paper on your iPad and then you want to continue it on your Mac, or you start writing an email on your iPhone and want to finish it on your iPad, this is what Handoff does. Handoff will allow you to seamlessly start a task on one device, and pick it up on another device. Now that Yosemite is out, with iOS 8 devices you are now able to use Handoff.
