Live video footage could be combined with computer graphics to create an Augmented Reality application. Game researcher Blair MacIntyre demonstrates what this might look like in a demo video below.
MacRumors suggests that the inclusion of a magnetometer (Digital Compass) could allow for determine your absolute position. You could use this to pointi your iPhone's camera at a building and have it tell you what building it is by overlaying data on top of the image. A similar application might show information about stars and constellations simply by pointing your iPhone towards the sky.
A more complex sensor system could also make the mockup application below a reality as well...