Microsoft has not been completely clear on whether the absence of FM Radio was an oversight or a lack of development resources. The latter option seems more likely, given the extensive behind-the-scenes rewrite in moving Windows Phone 8 to the common Windows core. As before, the functionality is available as a section in the Music+videos app.
In order to work, FM Radio requires that a headset be plugged into the device. This is because the headset acts as an aerial for the FM Radio. The FM Radio app is relatively basic, but does support RDS (station information) and allows you to add favourite stations (pre-sets). Tuning is automatic, with a simple swipe across the screen enough to change from one station to another.
FM Radio functionality has both a hardware and a software component. The software component will be provided by the GDR2 update, but the hardware component relies on an FM radio chipset and an aerial connection being present in the device. All Windows Phone 8 devices have the necessary chipset, but some do not have an aerial connection (e.g. Nokia Lumia 620). That means most, but not all, Windows Phone 8 devices will get FM radio.
FM Radio may not seem like the most ground-breaking feature in the world, especially given the availability of streaming radio and catch-up services. However, it is worth noting that FM Radio does not require a data connection and is much easier on battery life. This, together with its near universal availability, makes it a sensible inclusion on any smartphone, especially since the hardware is now a standard part of almost all smartphone SoCs (system-on-a-chip/processor).
To listen to the audio through your phone's loudspeakers tap and hold on the station (number) and choose the "listen through speaker option". Do note that a headset will still need to be plugged in for this to work.
The return of FM Radio functionality is part of the Windows Phone 8 GDR2 update. This software update ships with the Nokia Lumia 925, but will also be coming to existing Windows Phone 8 devices as part of an over the air software update. The update is expected to start rolling out in the next month. Do note that operator approval will be required for some variants, so, as with other software updates, it may take some time for the roll out to be completed.