I have 16 GB iPhone 4...in capacity under settings it says 14 GB...the missing 2 GB are dedicated for the OS as I was told by an Apple Genius...
That's a quick and dirty way to pacify most people who ask this, but it's not quite right.
What's actually happening is the issue between how most operating systems display storage capacity versus how storage vendors
market the capcity of their products. Most OSes have for the longest time treated a Kilobyte a binary representation... so a Kilobyte is 1,024 bytes, a Megabyte is 1,024 KB, and a Gigabyte is 1,024 MB.
This is also true in how iTunes shows the capacity of your iPhone. So, it expects a Gigabyte to be 1024 x 1024 x 1024, or 1,073,741,824 bytes.
Storage Vendors though, don't do this. They use Base 10 math... so, a kilobyte is 1,000 bytes, a MB is 1,000 KB and a GB is 1,000 GB.
What does that mean? Well, for every GB of Flash memory the vendor makes, the OSes see a "missing" 73MB, give or take. And it adds up FAST. For an iPhone 4 with 32GB of Flash memory installed, those missing megs add up to about 2.19GB of "missing" storage.
See:
http://en.wikipedia.org/wiki/Gigabyte#Consumer_confusion
Even more confusing is that makers of RAM memory, DON'T use base 10, and report RAM using base 2 just like the OSes... so a gigabyte of RAM is always, well... a gigabyte.
Apple has sort of "given in" to how the storage companies see things, and starting with OS X Snow Leopard, they're using Base 10 to report storage capacities on Hard Drives and Flash drives. This is mainly because people would get angry when they bought a 1TB hard drive, formatted it, and saw that it had "only" 944 GB of capacity.
But this change hasn't carried over to iTunes and iOS for whatever reason.
