I am trying to test the single sign on, so I wanted to download the Facebook application to the iPhone simulator.
Where can I download the Facebook application for iPhone and how can I place it on the simulator?
Unless you are the developer of that app, and more to the point, you have the source code to build from scratch, you cannot take an app downloaded through the App Store and run it in the simulator. Aside from likely being against Apple's terms and conditions, apps built for devices are built for ARM processors, while apps built for the simulator are actually Mac apps and built for the i386 platform.
I think you'll have to download the Facebook app to your device via iTunes, then build your app for an iOS device and run it on your device via Xcode. You'll need a developer certificate, of course. That's the only way you'll be able to test SSO with the Facebook app, I believe.