The bars, or little circles, just show a signal "range," not a precise measure of how strong your reception is. Here's a tutorial we put together that shows you how to change it to a number that reflects the exact strength of your phone, not a wishy-washy estimate.
1.) Dial *3001#12345#*
2.) Your iPhone will now launch Field Test
3.) Press and hold the Power button until the power slider appears
4.) Press and hold the Home button until the Field Test program is terminated
That's it! You'll notice that the bars (or dots) now reflect numbers. The closer to 0, the better your signal strength is. Hat tip to TechInsider for the the info.