iWork isn't really an Office replacement.
Pages is like a cross between Word and Publisher (in that it's a template based "document creator", with basic work processing). It's a **** of a step up from TextEdit, and will do fine for writing essays/newsletters/leaflets/screenplays at a much lower cost than Word (and it's a lot easier to make them look a lot nicer); so in that sense it's better for a lot of people, but it's still not a true replacement.
I have no need for Keynote or PowerPoint, so I don't really know the ins and outs of what each one does that the other doesn't (but Keynote looks a **** of a lot nicer, and unless I'm missing something, that is the point of a presentation, no?).
As for compatibility, I *believe* each program can save in and open their Office counterpart's document formats, but it's not perfect (after-all each program has different features, and works differently). If you need to share files between Windows and Mac, then Office (or a "clone") is your best bet.
You'll get a demo of iWork with your Mac. Play around with it, and if you like it there's no reason why you shouldn't get both, as they both have their advantages (and iWork's pretty cheap).