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Wired believes "that the Copy button takes the URL of your current web page and opens it in Pastebud's site. Once there, it looks like some Ajax-y scripting allows you to highlight text. This is then copied and can be pasted into another web page.
It also looks like the standard "Mail Link to this Page" functionality is hijacked to insert the pasteboard text instead of the page's URL."
At the end of the video you see the little end of trial pop-up window, asking for $5. Pastebud doesn't have a public website, but they do have a Pastbud twitter page letting us know that they will launch the program on Friday, and that they are currently the big thing on Digg.com.
Of course Apple could just implement copy and paste on the iPhone.