Today I found this great article on how the iPhone touch screen works.
The iPhone's screen detects touch through one of two methods: Mutual capacitance or self capacitance. In mutual capacitance, the capacitive circuitry requires two distinct layers of material. One houses driving lines, which carry current, and other houses sensing lines, which detect the current at nodes. Self capacitance uses one layer of individual electrodes connected with capacitance-sensing circuitry.
Both of these possible setups send touch data as electrical impulses.
Here's what happens:
Signals travel from the touch screen to the processor as electrical impulses.
The processor uses software to analyze the data and determine the features of each touch. This includes size, shape and location of the affected area on the screen. If necessary, the processor arranges touches with similar features into groups. If you move your finger, the processor calculates the difference between the starting point and ending point of your touch.
The processor uses its gesture-interpretation software to determine which gesture you made. It combines your physical movement with information about which application you were using and what the application was doing when you touched the screen.
The processor relays your instructions to the program in use. If necessary, it also sends commands to the iPhone's screen and other hardware. If the raw data doesn't match any applicable gestures or commands, the iPhone disregards it as an extraneous touch.
All these steps happen in an instant -- you see changes in the screen based on your input almost instantly. This process allows you to access and use all of the iPhone's applications with your fingers.