For those of us with "real" digital cameras, the ability to zoom the iPhone's camera is nice. However, the picture quality of a digital zoom is never as good as you'll get with an optical zoom lens. As you can see with the example photos above, the zoomed image tends to be grainy. This is particularly true in low-light conditions. If you can put up with the degraded picture quality, Camera Zoom is an inexpensive way to add zoom capabilities to your iPhone.
I'm surprised that Apple approved this app, since the icon is titled "Camera" just like the real Camera app, and it duplicates the functionality of the Photos app as well. The latter isn't done very well, since you can't flick the screen to move between pictures in the camera roll.
This is version 1.0 of this app, however, and it's a good start to what could be an easy-to-use photo manipulation tool for the iPhone platform.