Apple has launched the rumored iPhone trade-in program, which is called the "iPhone Reuse and Recycling Program". Trade-ins take place in Apple Stores, either on the floor or at the Genius Bar. Apple Store employees have been trained especially for the program, which covers multiple generations of iPhones, according to 9to5Mac:
Apple Store employees will conduct the trade-in process via the mobile EasyPay devices. A customer can bring in an iPhone 3G, iPhone 3GS, iPhone 4, iPhone 4S, and iPhone 5, and receive a gift card to be applied to a new iPhone purchase.
The value of the gift card will be based on the overall condition of the device being traded in. The new iPhone must be purchased during the trade-in process, and it will be activated on a contract. While trade-in values will change over time, it appears that a 16GB iPhone 5 in good condition has a trade-in value of around $250.
This trade-in program is part of Tim Cook's strategy of getting more customers to buy iPhones directly from Apple. When phones are sold by carriers, as is most often the case, Apple is at a disadvantage. The iPhone is presented as just another smartphone, one of many. But if Apple can control the presentation of their devices, they're more likely to be able to sell one to you.