There’s a great column at Strominator that explains exactly what it is:
The iPhone is not a phone, its the first generation of a new type of computing device. One that will change how we view computing. One that will make our lives simpler. We won’t have to learn how to use applications, we’ll just use them. We won’t worry about launching applications, saving files, quitting — just using. Every other smartphone is still based on an archaic, cumbersome, paradigm taken straight from desktop computers. Drop-down/pop-up menus, programs, files — ugh. Look how bad Windows Mobile is, and most of us are used to the real Windows on our desktops. Why should a phone take minutes to just turn on? The alternatives are not much better. Mobile OSX, what runs inside the iPhone however, is a whole new beast. Intuitive, responsive, and an extension of the beautiful hardware that it runs on.
Which is not to say there aren’t issues … as the article also talks discusses.