Adding captioning to movies in Netflix for the iPad, iPod touch and iPhone is going to be a big deal for a lot of people, and Netflix has added that feature today. It's already present when you watch Netflix movies with a browser on a desktop or laptop, but now mobile users can take advantage of captions as well.
Unfortunately, not all films have this feature. If there is captioning, a little voice balloon icon will appear on the volume control. Tap it and select English, which is the only option for now. I tried it in several movies, and about half of those I sampled have the feature. The captions are in yellow text and are easy to read. Captions are going to be really great for the hearing impaired, or even nice for watching a movie in a crowded environment.
As of this writing, the version listed in the iTunes store is 1.2.1, but the version that was delivered to my iPhone was 1.3. I think the iTunes store information is running behind, but make sure you have the latest version, which contains the captioning feature.