Android phones, like most devices with modern wireless technology, are able to switch their wireless hardware from the client mode to an ad-hoc or full on access point. This allows for the creation of the mobile hot spot, a wireless network that will share the phones data connection over Wi-Fi.
Most wireless carriers offer an application that allows for wireless tethering with the device. AT&T, Verizon Wireless, and many other major U.S. and worldwide carriers offer this option. While the application is usually free, the service itself costs upwards of $30 USD per month. Although this is the best option for most users, many advanced users choose to root their Android phone and utilize a third-party application for tethering. These applications are located in the Google Market application and are usually available for free or a minimal charge.