I use Mercurial but should be basically the same.
First, "hg clone" web2py somewhere on your hardrive.
Then in /applications, create a new app (I usually copy "welcome").
Then "cd" into the new app directory and "git init".
Now your app will be version controlled.
I host some of my projects on Bitbucket (similar to Github but private projects are free). In that case, I might create the project on Bitbucket and then "hg clone" it to my hard drive.
I don't use any of the git/hg features built in to Web2py.