What exactly does Verizon's *228 option 1 do for Iphone?

Try it and tell us.

Dialing *228 updates the Preferred Roaming List (PRL). Basically, what it does it tell the phone which towers it should look for first. An outdated PRL can result in an increased number of dropped calls, extra time required to connect a call, no service indicators. Verizon recommends you do it about once a month. Doing it more often or even repeatedly, won't hurt anything. If you already have the lastest PRL, nothing will change.

Dialing *228 is not some sort of magic fix for other hardware or software problems with the phone.

Best of luck.