Haptics mean touch feedback, basically. The problem with the iPhone's keyboard, etc. is that the buttons are virtual, and so there are no edges that you can feel when you touch them and no feeling of actually depressing a button when you type. This makes it more prone to spelling mistakes, etc.
Enter some PhD's at the University of Glasgow:
Right now, it's nothing but a proof of concept, but I wouldn't be surprised to see this show up in a future iPhone firmware.
Just as a side note, I'm amazed at the amount of apps that have been created by hackers for the iPhone with absolutely no official documentation. Impressive, iPhone dev community!