When you sync contacts from more than one source (i.e. Exchange and MobileMe, on-device and Google Sync, etc.), and there are duplicates, rather than showing the same contact twice iOS 4 will instead create a single, linked contact. This works on any iOS 4 device, including iPhone 4, iPhone 3GS, recent iPod touch, etc.
When you look at a linked contact, the header will show Unified Info at the top so you know it's linked. At the very bottom of the contact it will show you the source of the links (i.e MobileMe, Google). Tapping on the source lets you see the original, non-unfied info from just that source.
If you don't like the idea of your contacts being linked, you can tap edit and hit Unlink. If iOS 4 missed linking a contact that ought be linked, tap edit, scroll down to the bottom, tap Link Contact and choose the contact you want linked.