This is a feature limited to the template sold on this site. Some have it enable by default, others have is disabled by default. It depends on the design focus of the template. cMap, for example, has it enabled by default with a setting of 20 per page which is adjustable via the Template Customizer.
To see pagination in action, visit any of the real world sites that I provide links for or the demo page.
Pagination does work, just fine. I get very, very, few support related questions about it. When I do, it is more often on how to turn it off or on or change the page limit.
Hope that helps answer your question thoroughly.
ps. It just occurred to me that the pagination in the admin, the Connections : Manage admin page is paginated (defaults to 50) and it uses the same logic to determine the pages. So if you add enough entries you could see it on your site too in the admin.