The beacons themselvers are small, cheap Bluetooth transmitters. Apps installed on your iPhone listen out for the signal transmitted by these beacons and respond accordingly when the phone comes into range.
For example, if you pass a beacon in a shop, the retailer’s app (assuming you have it installed) could display a special offer alert for you. On a visit to a museum, the museum’s app would provide information about the closest display, using your distance from beacons placed near exhibits to work out your position. As such iBeacon could be a much better option for in-door mapping – which GPS struggles with.