Mercedes is dominating F1 so far this year Apr 09 2014
Coming into this season, Formula One made a lot of rule changes: new engines, better turbo systems, two different power sources (fuel & electrical), fixed-ratio gearboxes, etc. The cars had to be redesigned from top to bottom. Whenever a situation like this occurs, there's an opportunity for technical innovation (rather than the gradual improvements that tend to occur when the environment remains mostly unchanged). This year, the Mercedes team built their engines to get more out of the new turbo system than the other teams.
What Mercedes' boffins have done, according to Sky Sports F1 technical guru Mark Hughes, is split the turbo in half, mounting the exhaust turbine at the rear of the engine and the intake turbine at the front. A shaft running through the V of the V6 engine connects the two halves, keeping the hot exhaust gases driving the turbo from heating the cool air it's drawing into the engine.
Aside from getting cooler air into the engine and extracting more power (maybe as much as 50 horsepower), this setup also allows Mercedes to keep drivetrain components closer to the center of the car. It also allowed the team to use a smaller intercooler, which cools off the heated air before going into the engine, compared to the rest of the cars.
And the result so far? Utter Mercedes domination. Out of the three races this year, the two drivers for the Mercedes team (Lewis Hamilton and Nico Rosberg) have three first-place finishes and two second-place finishes (Hamilton had to retire with engine issues in the first race). Mercedes was certainly competitive last year, finishing second, but Red Bull-Renault easily beat them in the points race and one of their drivers finished 1st in 13 out of 19 races. More relevant to the discussion here is how easily these races are being won by Mercedes. In each of the three races, a member of the Mercedes team qualified in pole position, recorded the fastest lap, and beat the other teams' drivers by more than 24 seconds in each case. To put that last stat in perspective, last year the winning team beat the second place team by more than 20 seconds in only three races, with the margin typically in the 3-10 second range.
Update: I said earlier that one of the changes was "no refueling during races" which has been the case for a few years now (hence the 2-second pit stop). Also, this video is a great explanation of how Mercedes turbo is designed and how it helps make their car go faster:
Update: The 2014 Formula One season is over and the Mercedes team sustained their advantage throughout. If anything, their advantage increased over the course of the season. Just take a look at the driver's standings; in only one race (out of 19) did a Mercedes driver fail to finish in the top two slots. And when they won, it was usually by large margins. In the 2014 Brazilian Grand Prix for example, the two Mercedes drivers finished within 1.5 seconds of each other with the 3rd place driver finishing almost 40 seconds later. The Mercedes team finished with 701 points overall, nearly 300 points more than the second place finishers and almost equalling the number of points of the 2nd and 3rd place teams combined. Whatever the team's technical advantage was, it was too much for the other teams to deal with.