I mentioned Augmented Reality in the Digital Eyes post yesterday, but I came across a really good article on how it is being applied in the iPhone. One of the many new features on the 3.0 iPhone coming out in June is the inclusion of a magnetometer. The article discusses the application the magnetometer, as well as visual recognition technology, to augmented reality
The article on macrumors provides an excellent definition of augmented reality "as a combination of real-world and computer-generated data, where computer graphics objects are blended into video footage in real time".
There are many fascinating applications of AR that consumers will be interacting with come as early as June. "The iPhone could even overlay graphics and text on top of the image to provide additional information. Another application described is the ability to show information about stars and constellations simply by pointing your iPhone towards the sky."
For some eye candy, here's a less practical gaming application: