iWipe is a utility that zeros out free space on iDevices.
A common misconception about storage devices is when a file is deleted, it's permanently deleted. This is not correct. Only the reference to that space on the storage device is removed preserving the real data on the sectors of the drive. The same concept applies when you restore your iDevice. This is called a low level format.
Last year, I heard reports that Apple was issuing refurbished 3GS devices with data of the previous owner still preserved. Whether this was rumor or fact, I didn't want to risk selling my devices with the risk of my personal data still preserved...