When you tell a unit to "sentry" here is what it does in a nutshell:
1. You don't have to micromanage the unit each turn. Namely, the unit will stay inactive.
2. When a unit from a different civ enters a tile next to the one with the sentried unit, the sentried unit will be active your next turn.
3. I am not sure about other versions, but in Conquests, you can "Sentry" or "Senrty, Enemy Only".
4. There is no defensive bonus if you are sentried.
One change I would like to see with Sentry is that it would become active if another unit enters visual range of the sentry, not just the next tile. This would make sentried ships or units on mountain tops more useful.
I use sentry at choke points just to keep an eye out for movement from other civs.
