What are the benefits of creating a web app rather than an iPhone app?

Web apps are (to some extent) write once, display everywhere. You could make a web app and it would be viewable on more devices. In addition, you can also design some web applications (depending on complexity) for the iPhone, and then immediately package them using something like PhoneGap to turn it into a submittable iPhone app. Of course to include more of the native features of the phone, you have to make some changes to these affected features.

It's important to define the difference between Web Apps, Widgets and Native Apps.  Web Apps are built and deployed on a server and are accessed from your device via it's web browser.  Native Apps are built using a language specific for your device.  Widgets are Native Apps that are build using Web technology (such as CSS, HTML, JS, etc) but resides locally on your device via the means of a wrapper written using the native development language for you device. The value of building native applications (and widgets) is to get access to phone integration functionality.  For example, you can get access to the contact list or phone functionality.  The value of building Web Apps is to use web technologies, build once distribute to all devices and remote administration of applications.  Widgets are somewhat in between allowing you to do some remote capabilities with some level of phone integration.  Widgets also allow you to utilize Web Technologies if that's what you're expertise is.  Typically, the phone manufacturer would provide you with tools to not have to write code in native language, such as BlackBerry's Web Plugins.

You can create a web app using existing knowledge of CSS3, HTML5 and Javascript, and (as mentioned) package to PhoneGap. If you create for the iPhone only, you will need to understand Objective C. In addition (as stated) your app will only function on iPhones.

There's a middle way: create a native app that uses a Web site as its UI. That way when you need to update (or test something with a live audience) you won't need to wait for your customers to update.