I wrote a few days ago about a ball-shaped robot as an example of extending iDevices with hardware. In that field, this device is a lot more impressive. The Livescribe pen is designed to take the pain out of digitising, archiving and sharing handwritten notes. You could think of it as an alternative to writing on the screen of an iDevice with a stylus, since you get the feel of paper and ballpoint (it is, actually, paper and a ballpoint) but there's much more to it. Many people simply prefer the feel of pen on paper, and some studies show that people remember better when they write, rather than type, things out - but with Livescribe, while you write, you're getting an almost-instant backup on your iPad or iPhone.
Since, with the right adapter, you can project the screen of an iDevice, you could be drawing and writing on the pad while it's appearing on a screen for a whole class or meeting to see. Nifty - especially for those with good drawing and writing skills.
When I first saw it, I imagined the pen would be heavy since it would surely be packed with electronics ... but it's not. It may be thick-barreled, but it's light. What the pen actually houses, apart from Bluetooth, is a tiny camera. And the requisite paper is not laced with circuitry either - it's just paper, albeit printed with a very fine, almost imperceptible dot pattern. This is how the pen works - basically, it joins the dots, recording the process with the camera, and this pattern is transferred wirelessly to the Livescribe app to appear on your iPad (or iPhone) screen.
Another chip in the pen is memory, though: the Livescribe 3 smartpen retains notes and sketches even when you're not connected to your mobile device. Connect, and the drawings and text should appear in the app. (The previous models also stored audio but not any more, meaning the smartpen's memory can now store store thousands of pages of notes.)
The Livescribe pen only works when used with the company's proprietary paper, which is supplied in spiral-bound notebooks - buy the pen, get one pad and you will soon need additional paper. The tiny infrared camera in the tip reads the dots on the special paper ($7 per pad, and there are other paper formats available) to help it track its position and digitise your pen strokes. A lag of a second or two and the black lines appear in the Livescribe 'pages' on the iPad.