Biologists define evolution as a change in the gene pool of a population over time. One example is insects developing a resistance to pesticides over the period of a few years. Even most Creationists recognize that evolution at this level is a fact. What they don't appreciate is that this rate of evolution is all that is required to produce the diversity of all living things from a common ancestor.

The origin of new species by evolution has also been observed, both in the laboratory and in the wild. Even without these direct observations, it would be wrong to say that evolution hasn't been observed. Evidence isn't limited to seeing something happen before your eyes. Evolution makes predictions about what we would expect to see in the fossil record, comparative anatomy, genetic sequences, geographical distribution of species, etc., and these predictions have been verified many times over. The number of observations supporting evolution is overwhelming.

What hasn't been observed is one animal abruptly changing into a radically different one, such as a frog changing into a cow. This is not a problem for evolution because evolution doesn't propose occurrences even remotely like that. In fact, if we ever observed a frog turn into a cow, it would be very strong evidence against evolution.

Taken from the Talk.Origins: Five Major Misconceptions about Evolution FAQ