There've been some dictation apps before now, but now Nuance, makers of Dragon, the world's most popular desktop dictation software, is invading the App Store with their own. Plus, it's free (for a limited time)!
Dragon Dictation (link opens iTunes), which is based on the desktop Dragon NaturallySpeaking software, lets you do pretty much everything you'd use the iPhone's keyboard for, but with your voice. That includes using the iPhone's clipboard for cutting and pasting, as well as saying your latest Twitter or Facebook update aloud (warning: Saying "Just ate a sandwich LOL roast beef LOL" aloud may frighten those around you). It's still pending approval at the moment, but should be out either very soon or something tomorrow, at which point it'll be free for a limited time. LOL! [Nuance]