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The two main ways the iPhone will connect to the internet is via the 3G/2G network and via wi-fi.
By letting the iPhone connect to your wi-fi you are using your broadband connection while in range of your home network. This can be the cheaper option depending on the iPhone plan you are on if you have a small data pack plan. I have a 1G data plan and I have never gotten close to using it all up even with lots of youtube and web browsing. Your mileage may vary though.
If you set the wi-fi to on and leave it like that the phone will try and connect to any wi-fi that it finds. Obviously you'll have to enter in any user/pass to access the networks, but once a network is known to the phone it will auto connect unless you tell the phone not to.
Just keep an eye on your battery life when using wi-fi as you might want to turn wi-fi off at night or you can put the whole phone into airplane mode when not using it.
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