As I had an already scheduled day off work yesterday I put some decent hours into L4D2 and most of those were on Realism mode. Realism is not a new difficulty setting; rather it is a regular campaign - whose difficulty is chosen as usual - with some interesting tweaks.
Most noticeable is that the glow around other players and specials is removed. If you get lost there's no handy way to see where your friends are. If you get pounced you need to rely on your teammates seeing for themselves what's happening. Pickups do still glow but only when you are close enough to pick them up.
Perhaps more interesting is a nerf to damage from all but headshots. While headshots are still one-hit kills anything else barely tickles the infected and you'll need to aim carefully or expand a load of ammo taking them down. Even the hunting rifle is nerfed, making it - along with the generally weaker shotgun - suboptimal for this game type. Melee is unaffected by this change. Expect to see lots of running about with axes in Realism.
On that subject I should mention that melee didn't really grab me in the demo as I didn't give it much of a chance. In the full game melee is very useful and quite well balanced. One-hit kills and a wide AOE make melee weapons very powerful if you are brave, skilful and lucky enough to wade in and survive. A little like the original AvP game. Plus some of the weapons are very cool. Katana, anyone?
The other interesting change for Realism is that dead survivors won't respawn until the safehouse. No closet rescues along the way. Not that this mattered much as I was playing really horribly and tended not to survive much past the death of a teammate to find a closet.
A few small changes make the game really quite intense and interesting. Expert Realism is the new only way to play.