If you've used any high-end smartphone in recent years, you have probably come across some of the more common location-based services available. Typically found in weather and mapping programs, it's a handy extension of a phones ability to determine where you are geographically. Apple sees great potential in expanding this, and is already busy filing patents that would make the iPhone's entire home screen location based.
The concept is simple, but undoubtedly complex to implement. The basic idea is that your phone will identify your position and automatically show you applications most relevant to that location. Theoretically, any location-aware program could make use of this. It doesn't take much extrapolation to see how this sort of functionality would move well beyond fluff.
People are increasingly reliant on smartphones of all types for work, and often tote them around all day. Imagine a phone that reconfigures itself while you travel to work in order to present you with the applications you're most likely going to need - switching itself back automatically when you head home. The more you rely on your phone, the cooler this sort of idea becomes.
Personally, I could see the concept taken even farther with phones that configure ringtones, volume levels, automatic voicemail transfers and a million other options based upon where you are physically located. On a road trip? Your phone could automatically bring your GPS and road mapping applications to the front. At a library? It could automatically silence itself. In school? It could bring up notes and a web browser.
This is all just personal speculation - but clearly, something Apple may be hinting at for future functionality.