The service allows you to upload up to 2GB of contacts and pictures from your old phone to an AT&T's server (to do this you'll need to install a version of the app of your old phone). The Windows Phone version of the app can then be used to download the data from the AT&T server, which is then integrated into the phone (People and Pictures hubs).
Given the amount of data involved AT&T recommends that transfers are done over WiFI, but it is possible to use 3G / 4G data connections, although data charger may apply. You'll also need to complete the transfer within 7 days, as after that amount of time AT&T will wipe your data from its servers.
Whole Contacts transfer is usually fairly seamless, thanks to Windows Phone's People Hub integration with various social networks, the transfer of pictures can be more problematic. And pictures are important because they can be one of the strongest ties to an existing device. Pictures of loved ones, or favourite holiday locations have an emotional resonance that's hard to match (more, even, than a high score in Angry Birds). Pictures can be sent over manually, or copied via a PC, but a one shot mobile solution is very useful addition to transfer-to-a-new-phone toolkit.
Marketplace description:
Upgrading to a new AT&T phone?
AT&T Mobile Transfer migrates contacts, photos to and from select AT&T wireless phones. AT&T is offering this application as a free service for any AT&T wireless subscriber.
Customers upgrading their phones can transfer up to 2GB of photos using this wireless service. While this can be done over any data network, AT&T recommends using Wi-Fi for doing the migration. Data network charges may apply for 2G, 3G or 4G usage.
AT&T Mobile Transfer can be downloaded from the Windows Phone Marketplace for free; it can be found in the AT&T collection section of the Marketplace app or you can get a direct download link by scanning the QR code on this page using Bing Vision.