Ron has explained it very well above but perhaps another explanation won't hurt.
ems are based on the font-size of the parent (whatever that may be). As far as font sizes are concerned then em and % are the same thing and interchangeable.
If you say font-size:2em or font-size:200% then that element will have 200% the font-size of the parent.
My disconnect is that I keep referencing the "cascade" with this issue. For some reason I keep thinking that if I would have applied a certain font size to the parent element, in my case ".nested", [B]then every other element that is nested within the parent, would inherit that property as well[/B]
An element will only inherit certain properties (not all properties are inherited) and will inherit those properties only when no more specific rules apply.
Browsers have a default stylesheet that set the size of certain elements by default (heading tags for example) and to over-ride these you have to be more specific and apply your rules to those elements directly. That's the reason that [Reset and [URL="http://necolas.github.com/normalize.css/"]normalise](http://meyerweb.com/eric/tools/css/reset/) style sheets have been invented in order to start all browsers on a level playing field as they all have different defaults.
Setting font-size to a div is probably not a good thing to do as you most likely won't want all the elements in a div to have that font-size except for special cases of limited content ( e.g most divs will contains headings, paragraphs, lists, form elements etc and you would not want then all to be the same size. Usually you would target the elements more specifically and set thee size of the heading tags and p elements etc directly).
I usually set the body font-size of the page to the most commonly used font in that page which is usually the size for the readable text content and that saves a few rules as you then only need to define the differences but you still do need to take into account the browsers default stylesheet for certain elements.
You have to imagine that the browsers stylesheet is sitting at the top of the page and so any rules in that stylesheet will affect your layout. Here is en example of a default stylesheet but browsers all differ on the finer details which is why most "resets" set up a standard base stylesheet to begin with.