One week before your friend's birthday you will see an alert (non-flashing) in your sidebar under Calendar. You can also click on "Upcoming Birthdays" in Friends if you have mutual friends.
This feature works automatically. You don't have to enter your friend's birthday, but they need to be your mutual friend.
The feature doesn't give away how old you are, only the month and day you were born and only to your mutual friends.
I'm going to use the "Add Real Life Friend" feature to get all of my Real Life Friends to sign up for LiveWire and enter their dates of birth, because they will automatically be added to my mutual friends list. It's really slick.
I can never remember birthdays.