Skype is expected Tuesday to release a free iPhone version of its software that allows users to make telephone calls over the Internet.  [UPDATE: The application appears to be available Monday evening, but is crashing servers with high download demand.]

In what is perhaps the greatest sentence in tech journalism so far in 2009, the Washington Post hails this iPhone app as bringing “a great waft of flatulence in the face of the [telephone service] carriers and, in one smooth motion, high fives the international community of Skype users.”

Skype is a voice-over-IP telephone calling service that’s free to other Skype users. Calls to landlines and non-Skype mobile phones are billed at an inexpensive rate. Users buy “Skype Out” minutes (or pay a flat rate for all-you-can-talk). Skype uses WiFi to make calls on your iPhone, and CNet says that “call quality will in part be at the mercy and strength of wireless networks”.

The iPhone Skype application will have most of the features and functionality of other mobile versions of the VoIP program. A few additional features take advantage of the iPhone’s unique capabilities, like making an avatar image by snapping a photo in Skype, or choosing a picture from your iPhone camera roll. Another “imperfect” (according to CNet) feature is the capability to answer incoming conference calls. The ability to initiate conference calls isn’t there yet, but is rumored to be added to the iPhone Skype app in an update later.

Even iPod Touch users can use their devices as Skype-enabled telephones, provided they have a set of earphones with an embedded mic available.

CNet has a great overview of the features and limitations of Skype for the iPhone, having been able to meet with the application developers before the app release.