As shown in the first sample below, with the fz1 in macro mode, the smallest detail I could focus on was about 3.5cm wide. The fz1 lens was about 2cm from the subject, focal length 9.6mm (about 2x zoom). IMO, that's too close - shadow, snake bites, etc. You cant back off and use the zoom - you cant focus. But if you attach a close-up lens such as the b-macro you can put some distance between the subject and the camera lens AND focus on a smaller area as shown in the second sample. With the b-macro attached I was able to focus on about 2.5cm from about 8" away. The fz1 was at full zoom so I also had the capability of zooming out and framing the shot differently.
It appears that the macro capabilities of the fz1/2 are greatly enhanced by using a close-up lens. 1) You can focus on smaller detail. 2) You can focus further from the subject. 3) You can use the zoom.
fz1 in macro mode from about 1" (9.6mm focal length)
fz1 w/ b-macro in camera mode from about 8" (55.2 focal length)
The Olympus B-Macro is a 55mm +3 close-up lens; ~$100.
Addendums:
From C george: If anyone else is interested I picked up a brand new B-macro on ebay yesterday for $56 and Olympus puts more on as each is sold. They seem to have a good supply to auction.
From EffZeeOne: You can use the FZ1 flash for macros, you just have to use a trick involving a rubberband and an index card to create a bounce flash.
You pop-up the flash, put the rubberband underneath the flash had and then stretch the other end around the view finder. This pulls the flash back on the hinge so it's pointing up at about a 45-degree angle from the norm. You can use the flash in this configuration for normal shots as a bounce flash off a relatively low ceiling. For macro shots or shots needing more direct but diffused light, you can then taper or notch an index card and attach it under the rubberband on the flash head or use another rubberband if you didn't have to double the first rubberband around the flash head a couple of times to make it the right size. At about the half-way point of the index card, bend it so it angles a little forward to project the light toward your macro subject.
This is definitely a "home-job" technique, but it works very well, and I've used it to take some macro pics for eBay auctions. You get no shadow from the lens, and the light is diffused just enough to provide nice, even lighting.