The iPhone Notification action is automatically added to your system when you first login with the iPhone app.
Once the action has been added, you'll be able to assign it to monitors just like you would add actions to any other monitor.
When a monitor fires the action, you will see a message box notification on your iPhone with details about the alert. The PA Server Monitor for iPhone application does not need to be running in order to receive these alerts.
You can configure and control the display of these notifications the same way you would with any other iPhone application. Go to Settings -> Notifications, and then scroll down to Monitor (the app's short name).