The app can translate between 50 languages. It can take voice input for 15 of these languages and speak translations in 23 languages. The iPhone needs to have some kind of network access (3G or WiFi) in order for the app to communicate with Google’s language translation servers.
While the app and its service are nothing short of amazing in my opinion, you should not assume that every translation is entirely accurate. After urging a friend to install the app on his iPhone and to give me an assessment of its English/Chinese translations, there was several minutes of chuckling over “close but not quite right” translations.