If you have run this code, the assertion will fail in Winter '09:

global class TestCallByReferenceClass{

public static testMethod void testFunction(){

    Contact con = new Contact();

    System.debug('testFunction- con before: ' + con);

    Function1(con);

    System.debug('testFunction- con after: ' + con);

    System.assertEquals('TestLast',con.LastName); //Assertion will fail!

}

public static void Function1(Contact con){

    System.debug('Function1- con before: ' + con);

    con = new Contact();

    con.LastName='TestLast';

    System.debug('Function1- con after: ' + con);

}

}

To explain what happens in Apex, I need to give a couple of definitions:  "Call by value" means that a function actually gets a copy of a variable to use inside the function.  "Call by reference" means that the variable passed into a function is the variable itself.  Call by reference should make changes to a parameter variable inside the function be in the parameter variable after the function call ends because the variable outside and inside the called function are one and the same.

Apex is supposed to pass all objects by value, but there is a bit of a twist.

It turns out that the Contact "con" parameter in the code above is created as a reference variable to the real object and that reference variable is passed using call by value into the function.

The affect of this is that the "con" reference parameter that the function starts executing with is reassigned to hold a reference to the new object and forgets about the original object it was referencing.  When the function returns, the outer "con" object is still there untouched, but the "con" object with its LastName change went away with the copy of the reference variable that had existence only inside the function.

If you remark out the "con = new Contact();" line in Function1, the assertion does not fail because there is no reference variable reassignment.  The outer Contact "con" hooks to the same "con" inside the function so the changed LastName value is available when the function finishes.

This is the way Java behaves and I understand SF is programmed in Java.

SalesForce needs to document clearly if Apex behaves properly in this case, or fix Apex so that the function parameters to objects pass newly created objects out to be available when the function exits.