AIR iPhone is an Adobe AIR application that reproduces the iPhone's GUI. You need the AIR framework for this application to work. AIR iPhone's sole purpose is to replicate the graphical user interface of the mobile phone. There are many uses that I can think for this application.
The main one is for developers. Before compiling an application for final release, or maybe while they are writing it, they can upload it to AIR iPhone and see what the application will look like and give it a try. AIR iPhone is not fully functional, though. The web browser, Safari, and most other functions that can be found on the actual phone are not available on the replica application. Applications won't really run like if they were installed on the actual phone, mainly because the hardware hasn't been replicated successfully yet. People who are not developers might use this application to see what the iPhone is all about looks-wise. I remember trying this application before I found the courage to buy my unit.