In a nutshell, phasing is all about the information that's sent (or not sent) to your computer by the game server; Blizzard can toy with anything that's not client-side, affecting which buildings and NPCs you can "see" but not affecting the game's basic geography. I was surprised to discover that phasing has technically been in the game since launch -- ghosts and stealth are a form of phasing, as are (I would assume) the ghosts of Caer Darrow -- but the hugely elaborate set pieces of Wrath are simply a more complicated evolution of the same mechanic.
Given the success of phasing, players have been kicking around suggestions for instances or zones that could do with a touch of it, and Gnomeregan seems to be a pretty consistent pick. I'd have to agree, but I'd also add the Echo Isles (the Gnomes and Trolls have overcome their low-level foes by now, surely?) and perhaps Duskwood for starters. Is there any other zone or instance that you think would benefit from a little reality-bending?