Augmented reality is an interesting thing on the iPhone. Augmented reality apps have you point the iPhone camera at the world around you and the app will show information on the screen about what you are looking at.
Right now this type of app is mostly limited to those that give information about cities and local businesses. Games are now starting to take advantage of augmented reality as well and the latest is called Dimension Invaders.
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The premise of the game is that aliens have figured out how to move from their dimension to ours and you can only see them using your iPhone camera. You move the camera around the environment and you can shoot the invaders, looking like blue gumdrops, by putting the crosshair on them and touching the screen. The game only works with the iPhone 3GS and is available now for $0.99.