Searchify has to be enabled in your phone settings for it to work. To do this, press the MENU key on the home screen, then tap Settings, then Search, then Searchable Items. Check the box next to Searchify.
The first few times you use Searchify, its results will appear under a heading ‘More results…’. Once you’ve viewed Searchify results a few times though, Searchify results will appear in the main search results. [update: this isn’t true for Android 2.2 (Froyo)]
Don’t press return or the magnifying glass button after entering your search query! Just type in the query and wait. Searchify results (and other results) will appear below the search box.
Also, note that in Searchify Settings you can disable search modules by unchecking the box next to them.