The company I work for has set up an internal "social media" group to monitor what others are saying about us on Facebook, LinkedIn, and Twitter, and to offer guidance to our employees on how to represent the company in these media. I can't send you the slides they presented to us on LinkedIn because they're for internal use only, but I'll try to paraphrase some of the key comments.
The first thing to do is to set up your profile. You can make it as short or as long as you want, but it's going to become essentially a virtual resume so make sure you include the things a hiring manager is going to be interested in. You could even say something like "Currently seeking a position in drug development" (or whatever) if you like, although if you're changing jobs you might not want your current colleagues to find that statement.
From what I've heard from others, recruiters and hiring managers do use LinkedIn to identify potential candidates. One of my colleagues mentioned once that it seemed like recruiters were the only people who had accessed his profile. It hasn't happened to me, yet, but my account is still fairly young.
The next thing to do is find the groups in LinkedIn that would be relevant to your field (there's a search function that will help). I've seen jobs listed on several of the groups I've joined, and I've even seen a couple of people saying "I'm looking for a job." Make sure the groups are active - I believe the search results will tell you how much activity there's been lately.
Third, find the people you know (there is a 'people' search) and invite them to connect with you. This is where you'll start building your network (you will want to continue this after you find a new job), and you'll gain access to your contact's networks. In fact, LinkedIn will regularly suggest people to add to your network, based on both mutual connections and connections through your contacts. You'll be able to see their profiles, and you'll probably be able to contact them the same way you would using the traditional "off-line" networking approaches. MAINTAIN THE SAME NETWORKING PROFESSIONALISM THAT YOU WOULD USE IN THE DIRECT NETWORKING!
Something that will also help in the long-run is to be an active participant in those groups you've joined so you get your name and reputation out in front of people. Something like "Prof. Big Shot just finished some interesting work on xyz" in the appropriate group. (This is something that I still need to start doing.)
Hope this helps.