AirDrop, a secure, ad-hoc Wi-Fi transfer protocol created by Apple, began life on OS X Lion as a way to easily move files from Mac to Mac and person to person. Pretty much any file available in the Finder can be shared via OS X AirDrop. After a couple of attempts to move it to iOS met with rejections — it was deemed too complicated for mainstream customers — a new, though incompatible version was created specifically for iPhone, iPod touch, and iPad, and released as part of iOS 7. Since iOS has no file system, only items available in the Share sheet — photos, videos, locations, voice memos, notes, etc. — can be shared via AirDrop.
iOS 7 AirDrop uses both Bluetooth 4.0 LE and Wi-Fi, and iOS 7's multi-peer networking, to transfer data. That makes the effective range about 30-feet. Bluetooth is used to broadcast, discover, and negotiate the connection, at which point it's handed off to Wi-Fi for the actual transfer. This allows for the best mix of Bluetooth power savings and Wi-Fi transfer speeds.