The app is called "Picture Hype" and its a fun and easy way to create and share composite images, called Hypes, on your iPhone/iPod Touch. Hypes can contain text and images. You have the ability to move, zoom and rotate the text and images. Then you can save the new image to your photo library or e-mail it to your friends. (In the future we'll be able to send to Flickr and Facebook).
Here's a quick look at what you can do with Picture Hype:
This image took less than a minute to create with a single photo and three texts. It shows the ability to change font and color, as well as rotate and zoom of text.
You can see some more at the Picture Hype page.