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Wikipedia said:
Explanation
Sound is a pressure wave, which consists of a compression phase and a rarefaction phase. A noise-cancellation speaker emits a sound wave with the same amplitude but with inverted phase (also known as antiphase) to the original sound. The waves combine to form a new wave, in a process called interference, and effectively cancel each other out - an effect which is called phase cancellation. Depending on the circumstances and the method used, the resulting soundwave may be so faint as to be inaudible to human ears.

A noise-cancellation speaker may be co-located with the sound source to be attenuated. In this case it must have the same audio power level as the source of the unwanted sound. Alternatively, the transducer emitting the cancellation signal may be located at the location where sound attenuation is wanted (e.g. the user's ear). This requires a much lower power level for cancellation but is effective only for a single user. Noise cancellation at other locations is more difficult as the three dimensional wavefronts of the unwanted sound and the cancellation signal could match and create alternating zones of constructive and destructive interference. In small enclosed spaces (e.g. the passenger compartment of a car) such global cancellation can be achieved via multiple speakers and feedback microphones, and measurement of the modal responses of the enclosure.

Modern active noise control is achieved through the use of a computer, which analyzes the waveform of the background aural or nonaural noise, then generates a signal reversed waveform to cancel it out by interference. This waveform has identical or directly proportional amplitude to the waveform of the original noise, but its signal is inverted. This creates the destructive interference that reduces the amplitude of the perceived noise.

The active methods (this) differs from passive noise control methods (soundproofing) in that a powered system is involved, rather than unpowered methods such as insulation, sound-absorbing ceiling tiles or muffler.

The advantages of active noise control methods compared to passive ones are that they are generally:

More effective at low frequencies.
Less bulky.
Able to block noise selectively.
The first patent for a noise control system was granted to inventor Paul Lueg in 1934 U.S. Patent 2,043,416, describing how to cancel sinusoidal tones in ducts by phase-advancing the wave and canceling arbitrary sounds in the region around a loudspeaker by inverting the polarity. By the 1950s, systems were created to cancel the noise in helicopter and airplane cockpits including those patented by Lawrence J. Fogel in the 1950s and 1960s such as U.S. Patent 2,866,848, U.S. Patent 2,920,138, U.S. Patent 2,966,549 and Canadian patent 631,136. In 1986, Dick Rutan and Jeana Yeager used prototype headsets built by Bose in their around-the-world flight.[1][2]

http://en.wikipedia.org/wiki/Noise_cancellation
 
The second mic picks up background noise and essentially inverts it and adds it to the voice input of the other mic. This creates a input that contains more of the audio you want and not the background noise.
 
I think the second mic listens for background noise to cancel it out so that when you make a call your voice is a lot clearer. I may be wrong though. I am no expert.
 
The second mic at the top of the phone is used to pick up background noise, which is then removed from the sound that is sent to the person you're talking to.
 
and used for music...?

Wouldn't the same circuitry be able to be used for the headphone output to make normal headphones/earphones into nicer noise cancelling ones, so we wouldn't have to shell out £200 for Bose ones?
 
Oh man, that demo just showed me something. Pretty soon you're going to be seeing a bunch of Youtube videos with that "stationary camera on a moving person" effect they use in music videos. It seems to do a great job of that.
 
That video doesn't demo the noise-cancelling at all!

He's holding the phone at arm's length so the amount of his voice (and ambient noise) is pretty much going to be the same in both mics. The noise-cancelling is only going to work with the phone held up to your face, so that the main (lower) mic is much closer to your mouth than the secondary (upper) mic.
 
so the iPhone doesnt have stereo mics?

Not announced as such, but if the mics are electrically equivalent, and unless the noise-cancellation is being done in some dedicated hardware, maybe they'll allow CoreAudio to configure the mics as two separate inputs for stereo recording. That would be very cool.

EDIT: Having looked at the pics again, I'm prepared to be disappointed on this point, as although the two mics may be electrically equivalent internally, the secondary mic only has a tiny hole, so they will probably sound different and therefore not really be suitable for stereo recording. But hey, I'd rather have a clean mono recording than a bad stereo one.
 
Sounds pretty good and looks really awesome as well!

Agreed. Even without the noise cancelling, it does sound good.

Even the 3G can manage some pretty clear audio recording, though. I've used Voice Memos (and a third-party app before that) for recording the music rehearsals for my theatre group, and even an actor for a voice-over effect, and it was perfectly usable. Not a patch on my Zoom H4n, but way better than some cheap digital dictaphones.

I just wonder what it's wind-noise reduction is going to be like. Ambient noise hitting both mics equally is one thing, but wind around your head while talking (or videoing) outside is likely to be different in each mic, and so not cancellable.
 
Agreed. Even without the noise cancelling, it does sound good.

Even the 3G can manage some pretty clear audio recording, though. I've used Voice Memos (and a third-party app before that) for recording the music rehearsals for my theatre group, and even an actor for a voice-over effect, and it was perfectly usable. Not a patch on my Zoom H4n, but way better than some cheap digital dictaphones.

I just wonder what it's wind-noise reduction is going to be like. Ambient noise hitting both mics equally is one thing, but wind around your head while talking (or videoing) outside is likely to be different in each mic, and so not cancellable.

Wind even messes up the noise cancelation on my Bose QC 15 headphones.
 
Wouldn't the same circuitry be able to be used for the headphone output to make normal headphones/earphones into nicer noise cancelling ones, so we wouldn't have to shell out £200 for Bose ones?

Active noise canceling is detrimental to high fidelity. You are much better off using IEM for passive noise canceling.
 
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