You can either add two nibs (one for ipad and one for iphone), or you can add one nib that will properly scale for either interface. Normally you'd add two nibs if you're making a view that will cover all or most of the screen, and you'd add one nib if you're making something small that will, perhaps, be fullscreen on iphone but displayed in a popover on ipad.
The tilde suffixes ~ipad and ~iphone are described under the heading “iOS Supports Device-Specific Resources” in the Resource Programming Guide. Notice that the suffixes are entirely lower-case, not camel-case as you wrote in your question. This matters because iOS uses a case-sensitive filesystem.
When you get a path for a resource using an NSBundle message like -[NSBundle pathForResource:ofType:] or -[NSBundle URLForResource:withExtension:], iOS will first look for the resource file with a suffix of ~ipad or ~iphone, depending on the current device. For example, suppose you do this:
NSString *path = [[NSBundle mainBundle] pathForResource:@"setup" ofType:@"plist"];
If you run this on an iPhone-type device (including an iPod touch), or on the simulator in iPhone mode, iOS will first look in your app bundle for a file named setup~iphone.plist. If it finds such a file, it will return the path of that file. If it doesn't find that file, it will instead return the path to setup.plist.
If you this on an iPad-type device, or on the simulator in iPad mode, iOS will first look in your app bundle for a file named setup~ipad.plist. If it finds such a file, it will return the path of that file. If it doesn't find that file, it will instead return the path to setup.plist.
All of the other APIs that get resources from bundles are built on top of NSBundle, so they all benefit from this device-specific lookup. That means if you use +[UIImage imageNamed:], it will automatically use a device-specific image, if you have one in your bundle. And if you use -[NSBundle loadNibNamed:owner:options:], it will automatically load a device-specific nib (.xib) file, if you have one in your bundle.
This simplifies your code, if you use the suffixes. If you create MyViewController~ipad.xib and MyViewController~iphone.xib, your app will automatically load the correct one for the current device. You don't have to check the user interface idiom; NSBundle checks it for you. (You could also use the names MyViewController~ipad.xib and MyViewController.xib and get the same effect.)
Now, you may have noticed that when you created your “universal” project, Xcode gave your project files named ViewController1_iPhone.xib and ViewController1_iPad.xib, which do not use the tilde suffixes, and it included code to look at the user interface idiom and choose a filename accordingly. Why does the universal project template do this? I don't know, but it is stupid. I suggest you fix the filenames to use the tilde suffixes and rip out the code that checks the user interface idiom.