Open simulator.
Goto screen.
cmd-shift-4
click in upper left corner of simulator and drag to lower lower right until the little cross hairs tell you that you have a 320x460 snapshot.
In Xcode, with your app running on the device, open the Organizer window (Window menu > Organizer...). There's a screenshots tab, go there. Click the "Capture" button. Hey presto! One spanking new screenshot!
Drag it from the large view (above the "Capture" button) to your desktop.
Apple's submission guidelines state you should remove the status bar at the top of the screenshot. If your app doesn't have one, great, but if it does, remove the top 20 pixels using GraphicConverter.
You can use my free tool "iPhone Simulator Cropper" to create a screenshot of your app without the status bar directly from the iPhone-Simulator. Ready to be uploaded in iTunes Connect.