You will use GDB debugging when you want to debug code in any C, C++ or Objective-C libraries that you link with your MonoTouch application. There are a few techniques and macros that will help you debugging mixed code (managed/unmanaged) with GDB, to familiarize yourself with with these read the Debugging Mono with GDB from the Mono web site.
To use GDB you will need to launch your project from XCode, this is done by exporting your project from MonoDevelop to XCode.
You can use XCode to debug the low-level Mono runtime and set breakpoints on methods, but you will not be able to see the C# source code or variables. This is a low-level debugging technique.
First, select MonoDevelop's "Run/Debug in XCode". What this does is compile your C# and .NET code and generate C and assembly language code as well as an XCode project that can then be launched from XCode. This is the only mechanism available to talk to GDB on the device.
In XCode select Run/Debugger (Shift-Command-R) and you will be greeted with the debugger window:

On that window, select "Build and Go" which will prepare your code for the device and upload it, and will get the debugger up and running. You might want to set breakpoints in the source code before (the template.m file) or in the main method:

At that point you can start the project in XCode and you will have access to the GDB console and issue GDB commands. This technique works on both the simulator and the real device.
The standard output of your application will go into this console. A common trick is to print out stack traces using Console.WriteLine (Environment.StackTrace).
While running on the simulator, MonoDevelop is able to automatically redirect the standard output and standard error streams into the Application Output tab. This is not the case for the device though.
If you want to look at the console output from your application while it is running on the device, but you do not want to incur on the extra step to create an XCode project, follow these steps.
First of all make sure that the "Debug|iPhone" or "Release|iPhone" configuration is selected in MonoDevelop:

In this sample, I have added Console.WriteLine calls on my Main method and on the FinishedLaunching method.
Then select from the menu "Run/Upload to Device", this will build your project if it needs to be updated and install it on the device.
To look at the output of your application, you will need to use XCode. In XCode select the Organizer (^%O) and select the Console tab. In that tab you will be able to see the output of your application when you start it up, it should look like this:
