Say you're browsing a webpage in Safari, but you can't read the text because it's so small. Stick your thumb and forefinger together, place in the center of the screen, and move them apart. The webpage will "zoom in", and after a second, the text will refresh and get clearer for its new size. Doing the opposite will zoom out.
The exact same thing works for zooming in/out on photos.
Oh, did I mention that the resolution on the built-in camera is friggin' awesome?
Say you want to find the nearest Starbuck's. Use Safari to Google for it. Now say it's 9pm and you're not sure if they're still open. On the Google page, the store's phone number will show up as a hyperlink. Click on that, and you'll be asked if you want to call that number. You don't have to remember and type it.
Built-in Google maps. Built-in Yahoo weather. Built-in email client that connects via IMAP and POP. Sorry, this device does not talk Exchange (but if your email admin is nice and turns on IMAP, it works a treat.)
Oh, and it's an iPod, too. And just in case you forgot, it's also a phone.