Why would I need AC coupling if audio inputs already do the job?
I was going to comment on the schematic being backwards (usually we like to see signals flow from left to right) but perhaps it is appropriate in this case. 

Typically the phone supplies a voltage (through a pullup resistor or other current source) to bias an electret microphone, as Andy suggested in his comment. C1 isolates the bias voltage output by the phone from the DC offset of the attenuated Arduino output. 

But iPhones (and perhaps other smartphones) also measure the loaded output bias voltage voltage to detect the presence of an external microphone. That's why you need R1- to load the DC source in the phone. Here is a description of the operation.