Here is an Apple Support document on restoring your iPhoto Library from Time Machine:
iPhoto '11: Restoring from Time Machine with iPhoto '11 (9.2 or later) and OS X Lion 10.7.2 (or later) - Apple Support
Larry already summarized most of the issues, but note this paragraph: iPhoto no longer supports browsing Time Machine backups:
When using iPhoto ’11 (version 9.2 or later) and Time Machine with OS X Lion 10.7.2 (or later), iPhoto no longer has the Browse Backups option. This means that instead of restoring specific photos within your iPhoto Library, you must restore your entire iPhoto Library.
And this is critical:
Time Machine canʼt do a full iPhoto Library backup when iPhoto is open. To ensure that Time Machine does a complete backup of your library, periodically quit iPhoto before backing up.
It is important that you quit iPhoto before doing the first backup of an iPhoto Library, because you will need a full backup of the library. Later it will suffice to quit iPhoto occasionally, before Time Machine starts. You will not want to do a full backup of your iphoto library, every time Time Machine is running.