How does iOpenvpn work?
Since iphone OS does not allow users to install new kernel modules and openvpn required a tun module, a workaround has been resorted to. The route has been changed to pass all packets over the loopback interface. These packets are then sniffed (libpcap is used to design this aspect), and tun functionality is then emulated in user space via software. The result: going out the packets are encrypted in exactly the same manner as done by openvpn. Coming back, packets are decrypted using software and then sent over to the destination interface using raw sockets.

One needs to note that due to the above design, features of openvpn concering tun (things such as MTU size setting) are currently not implemented.