Your iPhone needs to be able to reach the computer you run the server on. If your iPhone is on the same wireless network as your computer, the easiest thing to do is to just run the server on your computer. If they are not, then run the server on another computer that both your computer and the iPhone can access.
Here are the instructions for using Firebug for iPhone. It's still a little "homebrew" but with time we can make the installation more automatic with py2app/py2exe.
Download ibug0.1.zip and unzip it somewhere, anywhere on your computer
Make sure you have Python installed - if you are on a Mac, it is already there, if you are on Windows, download it here
Open your terminal and cd to the ibug directory that you just unzipped
python ibug.py launch- it will start the web server and open the console in your browser. If you don't want to open the console, remove the launch argument.
Copy the snippet of HTML that you see in the console and paste it into the head of any HTML pages you want to debug on your iPhone
I have only tested the server on Mac OS X, but it should work on Windows or Linux. I have only tested the console in Firefox, but it should work in other browsers. If you have any problems, please let me know so I can make this as robust as possible. This is just the beginning - I can see more of Firebug's functionality, such as the HTML and CSS inspection and editing, coming along later as I do more iPhone development myself.