To copy an audiobook from a tape or CD to your iPhone, you will need to use a computer and iTunes. There are easier options to purchase audiobooks directly from the App Store or use the app from Audible.com. You could also purchase apps containing libraries of audiobooks. Set those options aside.
About iPhone Audiobooks
An audiobook on your iPhone is nothing more than an audio file that you play in the Music app on your device. Any audio format could be an audiobook. You can just as easily store a book or spoken word recording in the MP3 or WAV formats.
The Apple standard for audiobooks on an iPhone or iPod is M4B. What distinguishes an audiobook in the M4B format are bookmarks and the ability to navigate chapters. The .M4B file extension tells iTunes and your iPhone or iPod to treat the file as an audiobook. Really, M4B is identical to the more common audio extension M4A. Change the name of an M4A file to M4B and you effectively have an audiobook. M4B, like M4A, is just a container for audio encoded in the Advanced Audio Coding (AAC) format using an MPEG-4 container.
Tools to Create Audiobooks
If your goal is to take a book recording you have on tape or CD, or even an MP3 audiobook that you've downloaded or purchased elsewhere, you will require a computer. If you are not concerned with bookmarks and you don't mind that you have multiple (if not dozens) of audio files comprising a single book, go ahead and skip the process of converting the audio to M4B. You can import a number of different audio formats into iTunes and sync them over to your iPhone.
There are software utilities that will convert a variety of audio files to Apple's preferred M4B audiobook format.
On the Mac, the best tool available is 'Audiobook Builder' from Splasm Software. It simplifies the process, supports a number of origination formats and is available for under $10 for a single-user license (at the time of this article).
Sync with iTunes
When you have an M4B file (or MP3, WAV, or other compatible audio), you must import it into iTunes. The simplest method is to drag the file over your Library in the left column of iTunes and drop it there. Apple also offers a number of other methods to import into iTunes in their support document HT1347.
Create a custom playlist for your audiobooks in iTunes. This will help separate them from your music. Look to the "File" menu and either create a playlist and drag your audiobooks in or select your audiobooks and create a playlist from the selection.
Once your audiobook are in iTunes, sync your iPhone using the USB cable, but first check to make sure that you are syncing the audiobooks (checkmarks next to them) or the new playlists to your iPhone.
On Your iPhone
Once you sync your audiobooks to your iPhone, play them from within the Music app. You should be able to see chapters and when you pause playback, your place will be bookmarked until the next time you play the same book.
There are also a variety of apps designed to improve the audiobook playing experience on an iPhone. These allow you to bookmark your place or record notes while you playback. If you have the habit of listening to audiobooks in bed, the app iTired forces you to check in periodically, so you don't lose your place as you drift off to sleep while the book plays on until morning.