The headset included with iPhone features a microphone and an integrated button that allows you to answer and end calls easily, and control audio and video playback.

Plug in the headset to listen to music or a phone call. Callers hear you through the headset microphone. Click the mic button to control music playback and answer or end calls, even when iPhone is locked.

Stereo Headset with mic

Pause a song or video:
Click the mic button once. Click again to resume playback.
Skip to the next song:
Click twice quickly.
Answer an incoming call:
Click once.
End the current call:
Click once.
Decline an incoming call:
Press and hold for about two seconds, then let go. When you let go, two low beeps confirm you declined the call.
Switch to an incoming or on-hold call and put the current call on hold:
Click once. Click again to switch back to the first call.
Switch to an incoming or on-hold call and end the current call:
Press and hold for about two seconds, then let go. When you let go, two low beeps confirm you ended the first call.

If you get a call while the headset is plugged in, you can hear the ringtone through both the iPhone speaker and the headset.

http://www.apple.com/iphone/tips/