I don't know all the technical details of how Picasa handles RAW files, but my short answer would be: "Dont even bother". There's a good blog post on using Picasa with RAW files.
Unfortunately the conclusion is that it's pretty much useless. Picasa is a photo management app with basic editing and sharing functionality not a RAW post-processor. Even Google makes it pretty clear. Here's a quote from Google Photos Blog:

Although Picasa’s RAW support will do a great job of helping you organize and share RAW-formatted files on your computer, Picasa doesn’t support super-sophisticated editing of RAW files. For this, you’ll need to use either the software that came with your camera, or purchase advanced photo-editing applications, like Aperture or Lightroom.

Don't get me wrong. There is nothing wrong with Picasa. It's very good at what it's made for. I use it all the time for basic JPEG editing and uploading baby snapshots to share with family, but when I need to process some RAW files I'll always go to Capture NX or Lightroom (one day when I figure out how to handle colors in Nikon's RAW files).