For a designer, it's generally a lousy deal. The upside for the iOS apps or a startup is a lot better than the $300 for winning a 99Designs contest. Yes, you can build a relationship with the contest holder, but you're starting in the basement and it's unlikely you'll make any actual money from that relationship.
That said, it can be good practice for those who need it (and the quality of available designs typically reflects this).
That said, it can be good practice for those who need it (and the quality of available designs typically reflects this).