> How is a dollar today worth more than a dollar tomorrow?

Inflation, among other things. Deferring payments might add debt, but you've got to include the price of the debt: the interest rate.

Imagine you have $100 in the bank, earning interest. Lets say, if you keep it in your account for a year, you end up with $110. So, if someone gives you the option of paying $100 now, or paying $100 at the end of the year, which do you pick? If you pick now, you'll end up with $0 in your account. If you pick at the end of the year, you'll be left with $10.

Back to your question, normally when you add debt, that debt has interest payments attached to it. So the choice isn't "$100 now or $100 later", but "$100 now or $150 later". Imagine you still have your $100 in the same account, now the choice is to have a balance of $0 now, or -$40 at the end of the year, so it's better to pay now.

Whether you are in the first or the second situation depends on the relative profits from keeping your money invested (ie, via the bank) and the cost of the interest on your debt. For the iPhone, your monthly payments stay the same, so it's more like the first example than the second example, except that the new monthly payments are higher than for the old iPhone, so you still "loose".

jarnold is talking about a situation without debt, that's why you're confused - debt is effectively the difference between present value and future value. Think of debt as the cost of having something sooner rather than later, and you'll start to understand why we need to use a PV factor to price a future cashflow.

Here's a reformulation of the same problem:

If I paid you $200 now, would you pay me $10 a month for 24 months? You have access to a bank which gives you interest of 5% pa compounded yearly.

The answer is no, and the amount that you'd lose out by is $27.94

This doesn't have much to do with the iPhone since we're pricing two different products here, but it's a very important concept to understand in finance.

He's taking into effect the opportunity cost of spending that dollar verses investing it in something, if I'm not mistaken.