As far as I can tell, it doesn't. Videos and movies from the iTunes store have no closed captions.
I was at Apple when Alan Brightman ran the Worldwide Disability Solutions Group and guided, cajoled, wheedled and kajeedled the culture into designing accessibility features into the hardware and software. Some examples: PowerBooks were all built with a one-handed latch, (and now the Macbooks have no latch all), the system can be set so the display blinks when an alert sound is triggered, there are options for magnifying the screen, and setting sticky keys so that modifier keys (such as shift, command, option, etc.) can be worked one handed.
If you care about this issue, there's a "feedback" option under the iTunes menu. There's also a current thread about closed captioning in the Apple Support Forum.
By the way, Alan, who is now at Yahoo, spoke last week at Macworld. His inspiring talk on "The Accessible Mac: Yesterday and Today" is available on this podcast from Moving at the Speed of Creativity.
Closed Captioning, like many accessibility solutions, is helpful to many folks who do not have impaired hearing. Sometimes dialog is mumbled, or mixed low, or two characters speak at once. Some TVs now have a CC on mute feature, so that if you mute the sound to answer the phone, you don't actually have to pay full attention to the person speaking to you.
I read in one thread that the issue is in the underlying QuickTime code. As things stand now, it would be possible to encode open captions, always visible to everyone, but not closed captions that can be turned on and off. To my knowledge, no other internet-based video solution has closed captioning. So, Apple, consider this another opportunity to lead the way.
Mickeleh's Take: I'm going to borrow a guest take from Nate Voss
I can understand Apple, in the rush and excitement of launching a video revolution, accidentally forgetting that the hard-of-hearing might still want to download LOST. Hey, sometimes I forget to spell-check documents, too. But I always have to go back in and fix the things I’ve overlooked, and it’s time for Apple to do the same.(Tags: Apple TV, Closed Captioning, iTunes, Disability)