Simply put it is fairly normal for people to make programs which are reliant upon other programs which create libraries which the main program then links with. Xcode and the iPhone support this ..... somewhat.
Be warned though there are lots of oddities associated with using this setup.
Changing from Release to Debug (and vice versa)
If you decide to switch to a different build type make sure you go through ALL sub-projects and check they have the desired setting for the build. If you fail to do this then you will find that the build will fail - most normally with an obscure and unhelpful error (often about the 'plist' executable file being set as '(null)' - yeah I thought it was 'helpful' myself
).