When connected to your iPod, a "radio" menu option becomes available. When selected, you're presented with an interface that looks like an analog radio dial. Search for a station within the range of 87.5MHz to 107.9MHz (US and Europe) or 76MHz to 90MHz (Japan). Also, you can save favorite channels for future reference and move from station to station with either your iPod's clickwheel or the wired remote.
My feeling on this is "eh." The interface looks pretty cool, but I would have been happier had it supported satellite radio. The Radio Remote costs $49.00, works with the iPod with video and iPod nano and is shipping now.