Augmented reality represents the future for smartphones. In essence, AR involves layering extra information and search controls over the real world, as seen through a camera. The first augmented reality application was Layar for Android, and now an iPhone equivalent is out too.
Unfortunately, iPhone users are going to have to wait a while longer for full AR functionality. Apple's just announced that the iPhone camera won't be ready for AR until the 3.1 update. Some AR functions work fine with OS 3.0, but Apple's still decided that they won't release any AR applications over their App Store until 3.1 hits.
Apparently the reason is that AR app developers had to enable a restricted tool, called the 'Camera Viewer' in order to get their applications to work. The only iPhone capable of running an AR application is the 3GS, due to the built-in compass. It is possible that the new generation of camera-equipped iPod touches will be able to handle an AR app, although that would require an internal compass for them as well.
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It'll be interesting to see the effect that widespread augmented reality tools have on the general populace over the next couple of years. Once smartphones with AR become common, it's only a matter of time before someone develops a device or a peripheral that layers AR over a pair of glasses. Life gets a little more cyberpunk every day.