Page 46 of the Kindle 2 User Guide
(which you should read if you're really interested in a Kindle).
Highlighting a Passage
To highlight one or more lines, follow these steps:
1. Use the 5-way to position the cursor where you want to start highlighting.
2. Press the 5-way.
3. Move the 5-way right (or left) to where you want your highlight to end. You can turn
pages if you want to highlight text across multiple pages.
4. Press the 5-way at the place where you want the highlight to end.
5. Notice that the text you highlighted appears with a gray underline.
From the video on the Kindle buy page, it looks like you control how much of the line to highlight by use of the joy stick.