"Several months ago, we learned that Twitter's Inventor and Chairman, Jack Dorsey, was working on a brand new project, his first after stepping down as Twitter's CEO. Soon his new project was revealed to be the Square iPhone Payment System, which intends to replace credit cards with payments via your phone."
Born out of frustration when one of the members of the Square team, Jim McKelvey, realized he couldn't sell some artwork because he didn't take credit cards, this system solves that problem very nicely. Basically the device plugs into the audio input jack on your iPhone and you can start taking payments. Currently in Beta, they hope to have it out in early 2010.
You can see how it all works via this video on YouTube, although the sound quality isn't the greatest.