Open a new document in Illustrator CS2. Place a graphic you want to trace to vectors.

My example:



I chose an image with low resultotion so that it's easier to see what results you can achieve with this neat feature.

Select your image in Illustrator and go to "Object" - "Live Trace" and select "Tracing Options ".



In the window that pops up, you can set quite a few properties to fit the graphic you want to vectorise. This part really depends on the type of image you want to trace, so you have to play around with the settings until you're happy with the result.



But for my graphic, the default settings seem to do the job. So, when you're done fiddling with the settings, select "Trace" in the top right corner of the "Tracing Options" window.

And voila, your graphic is now vectorised, and can be scaled without loss of quality.