This is a pretty impressive app. A search through Flickr will give you a fairly good idea of the variety of work that can be done with this. Supports working with layers and layer modes (blending modes), has a good range of brushes and a full colour palette. Also allows you to save and rework images and for those who are interested you can import images from your photo library and use them as guides for creating work.
Best of course with a good stylus. Both Griffin and Bamboo do the job well.
Here are some images to show what can be done.