Hi Stephanie
Yes, this is a very useful (and undocumented/unmentioned) feature - it's easiest to demonstrate; lets say I wanted to track all hits that come from a particular site or vendor (e.g. Google adverts).
Add a vendor to your website (e.g on Smart-Thinker.com I add Google as a Vendor). Near the bottom of the Vendor details (you need to select it again) - there is an Affiliate section. Add an affiliate (the interface is a little strange - I just set it up from today for the next few years - I assume it only tracks it if it is valid. Note that there is an option to "Send notification" - this will send an email to the vendor email - it's worth setting up a test vendor to yourself and clicking this (don't send it to Google ;).
You will get an email with your domain and an AffiliateID with the Vendor ID at the end. This is what you want to give out to the people linking to you (or Google). You can work it out by looking at the VendorID and changing the AffiliateID in the link.
Put this into your Google Adwords campaign and test it with a click. When you view your sitelogs, your Affiliate Referels will list by Vendor ID.
Does that make sense?
Rodney