After speculation that Apple was using the new iPod shuffle 4GB to launch an "authentication chip" which only licensed headphones would offer, Apple themselves and a number of third-party accessory manufacturers have spoken up about the smallest iPod's hardware. V-moda, Monster Cable and Scosche have all described it as a "control chip", which uses the microphone channel in the four-channel headphones to send multiple commands: play, pause, volume control and more.
V-moda described the alternative to the in-line controller having the chip as being a separate remote circuit, demanding a second jack for the controls to plug into. This would obviously have prevented Apple's attempts to shrink the iPod shuffle 4GB.
According to Apple, the "control chip" will be legitimately offered by companies that have signed up to its Made for iPod program, which assures customers that third-party products meet Apple's own specifications. It also demands a fee from the manufacturers, which is inevitably passed on to consumers in the form of higher prices. Contrary to original speculation, Apple have not used any sort of encryption or DRM in the control chip, and so third-party companies looking to circumnavigate the Made for iPod program could realistically reverse-engineer the chip's mechanism and release cheaper products with Apple's blessing.
Of course, the end result remains the same: until third-parties can get their headphones and adapter cables to market, iPod shuffle 4GB buyers are stuck using Apple's bundled headphones.