As has been discussed, the iPhone 3.0 software update included location awareness in the Safari browser. That means that developers and publishers can incorporate current user location into their sites without having to develop a native iPhone app.
Google has now introduced its My Location feature for Google.com on Safari. It has been available through the Google Mobile App for the iPhone since the introduction of the app. It's also available via the browser on Android phones.
As a result of this move, local search results are slightly different on Google.com mobile vs. the PC site, where IP targeting is used to determine location (though on Chrome and Firefox now triangulation is used as well). Several searches I performed showed different ads (mobile vs. PC), with the mobile ads being more locally relevant.
The chief benefit to users is that they can enter a query without location and get locally accurate results (e.g., zoo, sushi). I don't have figures on the breakdown among iPhone Google users on the distribution of searches between the iPhone app and the browser. I would guess that much of Google search on the iPhone is coming first through the app and second through the search box in the upper right of Safari and third through people going to Google.com and entering a query. I could be wrong about that.
Regardless, location is very important to the quality of the mobile search user experience and Google's ultimate strategy is not about developing native apps for the range of smartphone platforms but about the browser as development platform across phones. My Location in the browser is consistent with that broader worldview and approach.