Copyright laws on iPhone apps?

There's an app called picsilk, you take a picture (the app automatically turns it black and white) and you put it on a tshirt and others can buy it, the money goes to the owner of the app. Other people can follow your account, like your photos etc and make shirt using your pics, I drew an artwork on "Paint" posted it on twitter a few months ago, today I saw someone use the artwork in the app to enter a competition, isn't that against the law? My signature is at the bottom but it was blurred out by the app.

You personally have to get copyright on this image for it to be illegal.

When you created the artwork on paint you gained a copyright because you fixed the work in a tangible medium of expression. In Australia and any other Berne Convention nation you are the owner of that copyright. All this means though, is that you can get an injunction to prevent the unlawful use of your work. To protect yourself further you need to register. In the future, if you don't do so already, you should affix a copyright symbol to either the works you create or the page on which you post them.

Unfortunately you can probably do very little to enforce your rights. Filing an infringement suit to get an injunction is a costly and time consuming process. You could also send a DMCA notice to the app's DMCA agent. As the company looks like it is a US based company they would be obliged to remove any work that is claimed to be copyrighted.

The first link has the contact info of picsilk's DMCA agent. The second has an example of a DMCA takedown letter.

You are correct, if you drew it then it is yours. Just like if you take photos, no one else can use them without your permission especially if its something generating profit. Of course it could be someone in China etc, and there's nothing you could do in that case.
I would contact the competition they are in and state that you are the owner of that artwork and someone blurred out your name. They should remove it then. I would also notify the owner of the app that you own the image and they need to remove this immediately.

Next time put a text watermark right across the middle of your image.