I use the @ function frequently. It makes me feel connected and lets others know someone (me) is really listening. I rarely tweet "what I am doing" because, quite frankly, I know most of the time nobody cares what I am doing. Steve Rubel, Robert Scoble, Chris Penn, Chris Brogan and the like are another story, I care about what they are doing at any given moment and I know others do to.
Twitter allows me to easily connect and build off the activities and thoughts of others more influential than myself and, of course, spread some link love. Isn't that a big part of what this social media thing is all about-- connecting and building two-way conversations?
(with that said I don't know how Chris Twitters so much and gets anything done; I would Twitter every second of everyday if it didn't distract me so much.)