iPhone In Action: sleep issues, what happens when...
Joined: Jan 08, 2008
What happens to your running app when the iPad/iPhone is turned off or suspended in the background such as when the phone rings?
Are there special considerations for the app to continue from where it left off?
If your app is developed with iOS 4.0 then and you will get notification when your application switched to background mode.
In 3.0 or if you are getting such interruption your application will be in suspend mode. Once your interruption gets finish your app will be relaunched from previous state.
Apple has well formatted document here.