What things use up data on the iPhone 4? Also, what things take up space? Is it just like the iPod touch as far as space goes?

Pretty much impossible for anyone to answer that question as stated. What apps do you plan to use? Do you want to watch a lot of streaming video, take a lot of pictures, shoot a lot of video, use office apps and store documents, read ebooks and keep a large library on there, how big is your music library, how big is your photo library (and do you plant to keep it all on the device), do you plan to use the device as a GPS navigation device (and if so, in car trips with constant real time navigation, hikiing and geocaching, what??), do you play a lot of games (if so, online or interactive games, or standalone games), do you use social networking a lot, do you want to use IM on the device,...

The permutations are pretty much endless, so without some details of how you plan on using the device, there is no way to offer opinions or suggestions. Some people only need the minimum of storage and use very small amounts of 3G data, others find even the 32Gb device limiting and use tons of 3G data. It's all in the apps you use and how you use it.

Anything that uses a network connection will use data, unless a wifi network is available to use (wifi does not count against your cellular 3G data use). So email, web surfing, streaming video, updating content in news reader apps - anything like that. Location based services as well, although there are GPS navigation apps that store their maps on the device, so do not need a data connection like the built in maps app (which uses data to fetch the map display data). TomTom, Garmin and others have apps that include the maps stored on the device, and some, like MotionGPS allow you to cache maps for use later without a data connection.

Pics, video's and music can also all be managed by only syncing what you want for the time being. As long as you don't mind manipulating the sync settings and sync'ing more frequently, then you can still have a big music or photo library, just not all on the iPhone at one time. Same goes for eBooks - as long as you don't want to keep a huge library on the device, just sync, read and remove when finished and put the next one on there (and eBooks take up very little space anyway - very compact format for ePub books).

It sounds like 16Gb would be alright for you, but just remember you cannot upgrade the memory later.

Also be aware of data settings. If you use push email, it will use wifi if available when the phone is awake/active, but in sleep mode it will continue to work, but will use cellular data (since wifi is disabled when the phone enters sleep mode). Manual fetch for email is a better way to control email data use.

If you get unlimited social networking data use, that sounds nice (not an option with any plan I know of in the USA) - just be sure they explain it clearly (i.e. is it tied to a particular app. or only via web connections to sites - in other words how do you use it to ensure it falls into the unlimited bucket and not crosses over into your limited general data bucket).

Enjoy!