Take the photo to the left, for example. The iPhone user is pointing the camera on his phone at a building. The application then provides the rest of the information and overlays it on a visual layer.
Take a look at this video, it's a more fun application of AR:
I know it seems like this technology is WAY beyond anything you can do at this point, but it's not. You can do it in Flash. Check out this tutorial from Adobe and learn just how easy it can be to create amazing AR applications.