How to Put Newline Characters in Substitutions of Regular Expressions of GVim

I use GVim on Windows 7.

I want to learn how to put newline characters by using regex substitutions. To do this I try to use \r and \n metacharacters but the substituted text doesn't show normal newlines.

For example, at the beginning I have:

line 1
line 2

I use the following substitution expression:

:%s/\n/\n\n/g

Then GVim produces the following text:

line 1^@^@line 2^@^@

Instead, if I use \r\n in the substitution expression

:%s/\n/\r\n/g

Then GVim produces the following text:

line 1
^@line 2
^@

What are those ^@ characters?

How to use newline characters in the substitution expression properly?