The Personal Hotspot turns a Verizon iPhone into a portable wireless router that can share its Internet connection with other devices. Up to five pieces of hardware with standard Wi-Fi adapters can connect to the iPhone’s micro base station. It can’t, however relay one Wi-Fi network to other devices—for instance, it can’t share an expensive hotel Wi-Fi connection with colleagues’ machines, an iPad, and itself. (—in other words, phones that work on AT&T’s wireless network—is reportedly in the works, as part of the forthcoming update. It could be available—as tethering is today—for the iPhone 3G, 3GS, and 4 models. Some features and pricing with AT&T’s version will be different than Verizon’s Personal Hotspot feature.)

Personal Hotspot replaces and expands the tethering feature introduced on AT&T iPhones with iOS 4 (and for iPhones outside the U.S. with iOS 3). Tethering is a one-to-one connection that allows a single computer or other compatible device to use a phone as modem over Bluetooth or via a USB cable. Personal Hotspot includes both of those options as well as sharing via Wi-Fi.

Setup and use is as simple as one might hope from iOS. First, you need to sign up with the service at Verizon Wireless by calling the company’s customer service line. You can also sign up for the service when purchasing a phone and plan. Verizon charges $20 per month for Personal Hotspot and includes a 2GB pool of data separate from the unmetered data usage available for apps, e-mail, and surfing. Additional gigabytes (partial or whole) are $20 each.

With your plan enabled, launch Settings, and tap General -> Network -> Personal Hotspot. After you turn on the hotspot for the first time, the Personal Hotspot item will then appear at the top level of the Settings app. You’ll notice the Personal Hotspot screen is full of information, explaining how to connect via Wi-Fi, USB, and Bluetooth, since all three options are available.