How it works is the Telly device receives television signals and encodes them in realtime into Quicktime for use on the iPhone. Telly appears to act as a local web server, providing the iPhone with a local url to interact with it. The user interface is entirely within Safari and television is streamed over WiFi to the iPhone.
Telly was first demoed in February at Mobile World Congress and will be available "later this year". No word on pricing is yet available.