It has built-in wifi, so you can use it for web browsing and chatting (if you don't mind the hunt and peck keyboarding), but also internet radio, Pandora.com, stock updates, and other cool "push" types of things. The screen is great for games, and there are a ton of free or very inexpensive ones (under $5) they can download. It plays movies and videos on a nice size screen, can display your photo library, and of course play music and podcasts. You don't get a massive hard drive that will store your entire music library, but enough room to give you plenty of music for a week's worth of listening, then just load new music if you get tired of it. You can also sync it to your datebook and address book, and other documents from your computer.
The Nano and other iPods are nice if you're mainly interested in carrying around a LOT of music or video, or need a very tiny player, but aren't very good for games. There are a few, but mainly stuff like solitaire, pac man, blackjack.
Since you have some time, you might consider ordering a refurbished unit from Apple
http://store.apple.com/us/browse/home/specialdeals/ipod/ipod_touch -- you can get a very good deal. Or just watch for post-holiday clearance sales at the electronic retailers, especially the ones going out of business. :/
It's really a marvelous thing. If you have iTunes on your computer, you can browse all the applications (App store) available for it and get a rough idea.
P.S. iPhone is nice, but the service plans are still very costly... I think like $70 a month, so unless you/he can justify that monthly expense, the iPod Touch does most of what the iPhone does. (No camera, no GPS, no wireless internet access -- although it can tap into wifi signals at restaurants or in home or on campus.)