It's a resistive touchscreen, so yes, it only detects one contact at a time. Capacitive multi-touchscreens like the iPhone's are really cool technology, but aren't very widely manufactured/used yet.
Basically how the resistive screen works is by setting one point as an absolute, and by measuring the change in resistance in the panel when touched, and with a little math you can tell how far that point is from the one you defined earlier. Screens like the iPhone's will have a row and column of wires that form small capacitances at everywhere the wires cross, when your fingers are over those wires, you can measure a change in capacitance. And because you can read this device similarly to a memory device, you can resolve where multiple objects are touching the screen.