What substances are currently used for time release capsules.  How do
they work?  What would be the best way to simulate the methodology of
time release capsules outside of the body?

Please refer to following similar question:
http://answers.google.com/answers/threadview?id=591938

In short, time release capsules have designer coatings which dissolve
at pH level of the desired site. For example, if we want contents of a
capsule to be released in intestine and not in the stomach, capsule's
coating is designed such that it does not dissolve in the highly
acidic environment of the stomach. However, after passing the stomach,
when the capsule reaches the more alkaline environment of intestines,
it's coating will dissolve releasing it's contents.
(pH number is the measurement of how acidic or alkaline an environment is.)
To experiment at home, take time release capsules (certain forms of
aspirin capsules for example) and measure time it takes to dissolve in
solutions of various pH levels. Stomach can have pH level of upto 4,
so you will need fairly strong acids for your experiments.