Love it or hate it, Genius is the marquee feature of iTunes 8. Basically, it creates playlists based upon a single song in your library. iPhone and iPod touch firmware 2.1 added it to those devices, and it has worked well in my experience. Here's how you can have your iPhone or iPod touch generate a Genius playlist for you (Note that you must sync with iTunes 8 to get the Genius icon on your iPhone/iPod touch).
First, touch "Playlists." You'll see the "Genius" option at the top of the list. Tap that, and a new window appears. From there, touch the song you want to be the basis for the playlist. Your iPod will work for a second, generate the list and immediately begin playing the first track.
While it plays, tap the screen to bring up the familiar progress bar. You'll notice the Genius icon is displayed, indicating that it's working on a Genius playlist.
Touch the back button to refresh the list (force the iPod to make new choices) or create a new one. You can also save the playlist from here. Note that Genius playlists are named for the original target track.
You can view screenshots of the process in the gallery below. Source...