Hey Psychgirl:

When you withdraw money from a 401k Plan or an IRA at age 59 1/2 it is taxed as regular income tax. The tax rate will all depend on your income level. Since you will be retired, your income level should be lower than your peak earning years so your tax level should be lower.
For a quick review on 401ks you can go to:
www.fool.com/money/401k/401k
You can also review other areas of this site for IRA information and other retirement topics.
Basically, the government is allowing you to set aside some of your earnings pre-tax. Which means if you make $35,000 per year and set aside $3,000 per year, you will only be taxed on $32,000 of income. So by jining a 401k, the first benefit is a tax savings. The next and most improtant benefit is employer contributions. You said the employer will contribute as well. Make sure you take full advantage of this.
When (or if)you leave this job, you can take your vested 401k balance with you to your new job, or do a rollover to an IRA. If you have any more questions, don't hesitate to ask. Good Luck

Bill