This certainly is a first. While Apple has allowed people to mail in their iPhones for a rebate, the convenience of being able to walk into an Apple store with an old iPhone and walk out with a new one could really help boost Apple sales a lot.
According to MacRumours, Apple has already started training its employees about this new trade in system. iPhone 4S and iPhone 4 users will be able to walk in with their old phone and trade it in for a gift coupon that will hold a rebate towards the cost of a new iPhone 5. It is also very likely that Apple will do the same with future models. Thus, the iPhone 5 will likely be the trade in option for most people looking to get the new iPhone 5S or maybe even the iPhone 6. It is not clear whether Apple will allow the trade in of iPhones older than the iPhone 4, but it is unlikely due to the low resale value of the iPhone 3GS and lower.
The iPhones that get traded in will be refurbished with the help of Brightstar and then likely shipped to emerging markets around the world.