how it works
It's actually a very simple form of affiliate marketing.
For a very helpful explanation, see the BBC Newsnight report on the Proof Page.
When you sign up for the free iPhone 3G, you sign up to a website that collects cashback on your behalf from selected companies.
The companies pay cashback to the website for every person that you introduce who tries out their product. What makes this so good is that, due to the high value companies place on gaining exposure to potential new customers, cashback amounts are high - meaning you only need to refer a relatively small number of people before you get your free iPhone.
Once you have referred enough people, you have made enough cashback for the website to be able to buy and send you the free iPhone.
Paying cashback every time you refer a new person to a company is actually far cheaper than for a company to run an advertising campaign, so more and more companies are getting involved.
an example
You sign up to a website that offers a free iPhone 3G, worth £100.
In order to be eligible to receive the free iPhone 3G, you need to refer 4 people.
Each of the 4 people must complete a company's offer (many are free of charge e.g. free trials of DVD rentals).
The company pays £25 for each person referred.
The website gets paid £125 (5 x £25 - you also must complete an offer), which it uses to purchase and send you a free iPhone 3G. The remainder is profit for the website.