Everyone is writing about how the bars (indicating network signal) drop and the call drops if you hold in in your left hand. I thought, I'd write some too!
There are two major indicators of signal
1. RSSI - Received Signal Strength Indication: This indicates how much power from the signal tower (base station) is received in the phone. Needless to say if you are close to the tower, the signal strength is usually higher and it falls as you go away from it. (Unless you travel inside a lead capsule)
2. SNR / CINR - These are two terms that are almost used interchangeably. SNR is Signal to Noise Ration and CINR is Channel Interference+Noise Ratio. This parameter indicates the quality of the signal received (as opposed to RSSI which indicates the quantity)
RSSI is measured in logarithmic scale (dBm - decibel meters) and SNR / RSSI is a ratio of signal strength and noise strength (dB)
For RSSI, -50 dBm to -110 dBm are the usual range (-113 dBm in the case of iPhone 4) - But this is dependent on various parameters (technology used GSM/GPRS/3G/WiMax etc), the receiver quality, number of receiver antenna chains (in a Multiple Antenna system / MIMO) etc.
Cellphones usually, sync up to one tower, and then on the move, take decisions to jump across towers esp to the ones that can provide better signal.
A good RSSI does not mean a good quality signal. For e.g., there could be another tower operating in the vicinity in the same frequency/band and this can cause interference with the received signal. In this case, the SNR would be very low (even negative! if SNR is negative, it means that the noise/interference is higher than the received signal)
Otherwise, there are issues called Multipath Issues - For e.g., the same signal can bounce of various surfaces (like buildings) and then reach the cell phone. In this case, the same signal is received multiple times with slightly different delays, thus appearing like interference (There are technologies that help overcome this issues, but this is indeed a problem) - This multipath also causes signal quality to fall low.
The question comes to:
What to do you show on the phone to indicate signal? Is it the signal strength (RSSI), or the signal quality (CINR)? Apple decided to show the signal strength and calibrated the following way:
-51 to -91 : 5 bars
-91 to -101 : 4 bars
-101 to -103 : 3 bars
-103 to -107 : 2 bars
-107 to -113 : 1 bar
lesser : 0 bars
You can see apple has almost a 50 dBm range for the 4-5 bars and 12 dBm range for the remaining 3 bars.
The problem iPhone 4 now has is that it has two antennas (one for WiFi/Bluetooth/GPS) and another for cell phone reception. These two are so close to each other that if you hold them with your left hand (hold it tight) then the two might short thus causing a drop in signal strength.
Apple is now trying to split the range evenly spread across the 5 bars. Do you think this will solve the problem? :-) See Apple's solution!
You'll now see lesser drops in bars before your call disconnects by holding it in your left hand :-) - The problem still remains!
 I am huge Apple fanboy! I type this in a Macbook Pro and have a Mac Mini @ home! I've bought quite a few iPods (shuffle, Nano, Classic etc)
 I've tried to avoid too much technology stuff in this blog and technical people can complain about oversimplification. But that's a stance I took because, I was targeting regular people for this blog entry (and secondly, I am not too much of a techie in this domain)