|Randall Munroe describes it perfectly.|
After the request for comment, news services erupted. Venture Beat says that Jimmy has "given up his administrative privileges". Most of this inaccuracy stems from the Fox News article describing the situation, where not only does it say that Wales is the president of Wikipedia (not true), but he has relinquished his top-level control (also not true, as we will see). Chances are that Fox deliberately spread this misinformation because of their historically controversial relationship with Wikipedia. Another aspect of the chaos, though still far from the truth, is a TechCrunch article that refutes the Wales stepping down claim. Never have I seen a situation where nobody knows that actual truth.
Well, from my limited experience on Wikipedia, here is the truth. (This truth is confirmed on the original request for comment page.) MediaWiki, the software behind Wikipedia, has a special page that shows the current rights of all user groups. Furthermore, users can view the public log that shows exactly how the founder position has changed on Wikipedia. And finally, you can look at the user list that shows what groups Jimbo is in. From all of this evidence, we can finally clear out the trash. It is true that Jimbo removed most of the abilities of the founder flag, so now a founder can only make new administrators and edit user rights. However, just by observing that claim, Jimmy still has the ability to edit all user rights, meaning he can give himself back all those powers at any time. Furthermore, removing the founder rights has no effect on what Jimmy can do, because Wales is also a member of the administrator, checkuser, and oversight group, so most of the rights he removed he still effectively has. This may be a little hard to understand, so here is a quick summary: Wales can still delete articles, block users, protect and unprotect pages, look up people's IP addresses, delete edits on the site, and edit everybody's user rights. The only thing he really cannot do is mass delete, which was one of the permissions he removed from the founder flag.
I think the best part is that Wales's stepping down has successfully taken a good portion away from the actual story: Wikipedia has been hosting child pornography (it is irrelevant whether the claim is true or not, because I doubt the companies that donate to the Wikimedia Foundation would think twice about pulling out of an organization that has been reported to the FBI by one of it's former founders). Anyway, I still respect and love Wikipedia as it remains one of the more ideal utopias of openness in the Web 2.0 world, and I hope Jimmy Wales does not get too caught up in the mudslinging over there in Silicon Valley, because it's a lose-lose for everyone once you start something like that.