I would imagine that a lot of the 20% projects end up being incorporated in, or part of something profitable. Adsense, for example, was a side project.

From what I understand the rule is that you get to choose what you work on, but it has to align with the company.

So what you end up with is that your most talented/intelligent staff end up working on, and learning about things that they think are interesting and will help the company.