LonelySandwich.com took the time to mockup a video of how Copy and Paste might work on the iPhone with multitouch.
The process involves using the tap/hold text magnifying glass to mark the beginning of the select by tapping with a second finger. Then scrolling to the end of the text and tapping again. Once you text is selected, a dialog pops up to confirm the copy. Paste works similarly.
The author cleverly overlaid his mouth over the existing iPhone tutorial videos from Apple and preserved the style.