Remember when AT&T was selling refurbished iPhone 2G's at (what was then) ridiculously low prices? Remember how it turned out some of those units still contained the personal information of their previous owners? Apple seems to remember, and has reportedly taken steps to prevent it from happening again.
As with a computer, when you simply delete a file, the file typically remains but is marked as deleted by the file system and will eventually be over-written. To delete something and make sure it's deleted, you need to over-write it, and not just with a single binary bit (zero'ing out). You have to over-write it with (pseudo) random data, and over-write several times.
Apple does something like this on the desktop with "Secure Empty Trash", and now they're bringing the same concept to the iPhone. The catch? Time. The new dialog for "Erase iPhone" now warns that "This will take about an hour."
And let's face it: what's a little time if it prevents that eBay buyer from getting all your personal details, right?
Check the read link for the Settings screen shots...