I am looking for translation features in Sitecore. Does Sitecore provide translation support out of box? I saw translate button in version tab but not sure what does it do.
Sitecore does not provide any translation support out of box. You can use probably use ClayTablet (http://www.clay-tablet.com/products/cms-connectors/sitecore) or GlobalLink (http://www.translations.com/globallink/).
The translate button is to help you when you enter field values for a different language. It provides one field for current language and one for reference (e.g. english).