When first run, TouchDevelop runs you through a tutorial - it's purely a 'tap this, tap that' sequence, but it does give a flavour of how to proceed:
Don't worry if it's all passing by in a blur, there are loads of help texts, courses and books at touchdevelop.com, highly recommended.
I also noted that there's a TouchDevelop tutorial channel on YouTube, here's a sample from its output:
Yes, the narration is somewhat mechanical and both it and the on-screen action pass far too quickly, but hey, your browser's playback engine has a pause control....
Developing on the phone itself is not a new concept, of course. Back in the 1990s, almost every Psion palmtop owner dabbled in the onboard OPL now and then (albeit helped by a full physical keyboard for bashing in code), with many on-device-written apps graduating to become public domain classics. With Windows Phone, everything's more graphical and almost all code can be constructed from panels of buttons and pick lists, but the same advantages apply - you can code on the tube, on the bus, on a plane, etc. Wherever you've got time to kill or when inspiration strikes.
Comments welcome if you've tried TouchDevelop? You can find it here in the Windows Phone Store.