A man-in-the-middle proxy, like suggested by other answers, is a good solution if you only want to see HTTP/HTTPS traffic.
The best solution for packet sniffing (though it only works for actual iOS devices, not the simulator) I’ve found is to use rvictl. This blog post has a nice writeup. Basically you do:
rvictl -s <iphone-uid-from-xcode-organizer>
Then you sniff the interface it creates with with Wireshark (or your favorite tool), and when you’re done shut down the interface with:
rvictl -x <iphone-uid-from-xcode-organizer>
This is nice because if you want to packet sniff the simulator, you’re having to wade through traffic to your local Mac as well, but rvictl creates a virtual interface that just shows you the traffic from the iOS device you’ve plugged into your USB port.
Note: this only works on a Mac.