They're referring to apple care protection. I believe the iPhone comes with 90 days tech support? AppleCare also ups the standard 1 year warranty to 2 years on defects.
I went with a Squaretrade warranty. $84 up front, covered for 2 years. Doesnt cover loss or theft but covers everything else and the deductible is only $50. VZWs deductible is like $150/$200 I believe depending on model.
Yes most apps are paid apps in the AppStore, many free ones though.