Xephyr, for the most part, is a *fuller-featured* Xnest. So, 'man Xnest' will give you an idea of the options that you can use with Xephyr.
I've only ever experimented with Xephyr and Xnest, and have never really put either one to practical use beyond the "wow, that's kinda neat." side of things.
There is scant info available on Xephyr - the README pretty well sums it up.
For it to work on your lan, you'll have to have XDMCP set up on the server (eg, you run Xephyr on your pc, and the pc that you wish to access must have XDMCP set up.) Google for instructions specific to your distribution.
Let's suppose you're on computer A, and XDMCP is established on computer B:
you@A: $Xephyr :2 -query B -screen 800x600 &
This should open a Xephyr window, and (depending on how you've setup XDMCP), you should be presented with a login screen from computer B (with a resolution of 800x600...there are options for depth, etc...)
Last edited by mrclisdue; 11-16-2008 at 12:17 AM.