Harvesting power is a bit questionable, but in terms of an input mechanism, Square built their reader on the idea.

As far as it being a hack for a closed platform, I'm not sure why that matters if your goal is to interface with the primary mobile phone platforms. This solution works, and if you need something more professional, working with the dock connector itself isn't an burden any more insurmountable than dealing with injection molding or other product design and manufacturing concerns.

Agreed.

Using the dock connector with a legitimate product requires you to join Apple's "Made for iPhone" program.

For a device like Square that works on multiple platforms, the audio jack is a common interface and the Square reader has the benefit of requiring little (to zero) power to function as it consists of a magnetic head that works when a card slides across it.

Looks interesting...but what is the real application?

Prototyping mobile accessories! When you're working with hardware, building things to make things talk takes a lot of time. This makes it easier.

It's also useful for student projects. I got one of the original wiretaps when they were giving away their first batch for a prototype medical device (we didn't end up using it in the end because it was still too much work).

Well there is a small company that created a credit card reader using it to enable smartphones to act as Point of Sale machines. They call it "Square".