The upcoming OpenSSH version 4.3 will add support for tunneling. What type of uses is this feature suited for?
Damien Miller: Reyk and Markus' new tunneling support allows you to make a real VPN using OpenSSH without the need for any additional software. This goes well beyond the TCP port forwarding that we have supported for years - each end of a ssh connection that uses the new tunnel support gets a tun(4) interface which can pass packets between them. This is similar to the type of VPN supported by OpenVPN or other SSL-VPN systems, only it runs over SSH. It is therefore really easy to set up and automatically inherit the ability to use all of the authentication schemes supported by SSH (password, public key, Kerberos, etc.)
The tunnel interfaces that form the endpoints of the tunnel can be configured as either a layer-3 or a layer-2 link. In layer-3 mode you can configure the tun(4) interfaces with IP or IPv6 addresses and route packets over them like any other interface - you could even run a dynamic routing protocol like OSPF over them if you were so inclined. In layer-2 mode, you can make them part of a bridge(4) group to bridge raw ethernet frames between the two ends.
A practical use of this might be securely linking back to your home network while connected to an untrusted wireless net, being able to send and receive ICMP pings and to use UDP based services like DNS.
Like any VPN system that uses a reliable transport like TCP, an OpenSSH's tunnel can alter packet delivery dynamics (e.g. a dropped transport packet will stall all tunnelled traffic), so it probably isn't so good for things like VOIP over a lossy network (use IPsec for that), but it is still very useful for most other things.