1) iPhone apps: Run correctly on the iPhone. Can also play on an iPad 'blown up.'
Example: Angry Birds
2) iPad apps: Can only run on an iPad.
Example: Angry Birds HD
3) Universal apps. It's one app but it contains both 1 and 2 wrapped up into it. It runs the correct version depending on what device you have.
Example: iMovie
So it depends on what app you have. Some apps take the 1 & 2 approach so they can sell you 2 versions. Other apps are made to run everywhere for one price. It all depends on the app.