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I haven't used it, but I would talk to your HR department before to get some details. I think it works like regular money, but you can't get it back if you don't use it, like a health care flex spending account. And there is a limit of how much you can put in.

This is a great option that a lot of people don't take advantage of!!!

You can put money into a Dependent Care Flexible Spending Account. The maximum for a couple is $5,000 annually. The money is put aside pre-tax so you don't pay state/federal or fica taxes on the money. It reduces your taxable income. Usually this is better than taking the childcare credit on your tax return.
The money must be in the account before you can be reimbursed (just like a bank account). And you have to go to a facility that uses a tax ID # or an individual that files taxes with their SSN. So basically, you can't put money into the account to pay grandma :o)
Also, both you and your spouse must work outside the home or be seeking work to be eligible to put the money into the account. So you can't use it if you SAH and just want to put the baby in daycare 1 or 2 days a week.
Once you have your baby, it's a qualifying event for you to enroll in the plan, just see your HR dept w/in 30 days of having the baby to elect the coverage amount.
I think that covers the basics. Let me know if you have any other questions! I'm in insurance consulting, so I'm happy to share what I know!!!

@Adira - Qualifying events are federal and shouldn't vary state to state to my knowledge. It is definitely worth a conversation with your HR team though.
There is no income limit... but if you or your spouse are owners of a company then you wouldn't be able to participate. There can also be issues if you work for an SCorp or LLCs/LLP or if you're more than a 2% owner and are considered highly compensated.
I run into that issue for example with a smaller law firm - the lead attorney usually isn't eligible for this kind of plan.
If you're just a regular type employee, there shouldn't be an issue.

@HoneyBee - You are right! If you're in school full-time then you the dependent care FSA is available too. You may be able to squeak by with less than a full-time schedule, but you would want to check with your HR department or your FSA Vendor (Aflac in your case).

Also, I think someone else mentioned this - but it is a USE IT OR LOSE IT Account. So if you put the money in the account you want to budget accordingly. I know we will blow through $5,000 in a year, but if for some reason we didn't, then we would lost that money.

I deal with this for a living so if you need anything addl info let me know.

I didn't read all the replies but you can not use a FSA for daycare , you would use a DCA (Dependent care account)

The max for the FSA will be $2500 starting 2013 and the max for the DCA is $5000.

@Adira - you are most welcome!!! Benefits are confusing and it's hard to know what's the best sometimes. But if you use daycare, you can't go wrong with the Dependent Care FSA's!!!

@Adira: I don't believe its one or the other, you just can't count the what you put in the DSA against the childcare credit, if that makes sense. I believe if you put 5k in DSA and your spend 12k on childcare for the year, for the childcare credit you will say you spent 7k not the full 12k.

We max out our DSA every year and also use FSA! But you just can't claim that portion during tax time.