This makes turn by turn GPS work. By knowing which direction, you, the car, or the phone is facing, it can display the map in FRONT of you, at a view that displays the road.
This is very difficult to do without a compass, and requires you to be moving, which you are not always doing, so the software has to guess which direction your are moving or facing.
Now, all they have to do is to have location based alerts or activities (along with server based events).
My work phone was a htc sprint. It told you traffic jams on the gps phone which was 100% accurate. Would like to see the iPhone at least, catch up.