How does a case improve reception?

Who told you it improves reception? The case just disables your hand from coming into contact with the spot.

 

Having a case on the phone prevents your skin from touching the lower left had corner of the device and bridging the current, an easy fix for the anntenuation.

Hope this helped,

 

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The iPhone 4 antenna issue is really a two-part thing.

1) Covering the antenna with a fat, dense, fleshy material. (your hand) This can effect any phone, and is what Jobs wanted to talk about during the press conference. (remember the videos of competing phones dropping bars?)

2) Bridging the antenna gap. This is the issue that is specific to the iPhone 4. Apple didn't talk directly about this issue, but this is what the case fixes.

In either case, you may or may not notice the issue depending on how the signal is in your area.

 

Your finger can carry a current(conduct electricity), while plastic cannot. Therefore your finger will short both pieces of metal (it carries a current form one to the other).

 

Btw, fingers carrying current is how iPhone touch screen works. If you touch it with something that doesn't carry current (like, say, you touch it while wearing gloves), it won't work.

 

http://en.wikipedia.org/wiki/Path_loss