It might cannibalize Mac sales somewhat, but it would increase iPhone sales which Apple makes more money from, so I doubt they'd be bothered. They've had internal ARM ports of OS X for several years at least (probably the source of the rumors about Macs switching from x86 to ARM) so I'll bet this is being played with, even if it isn't a product ready to launch. The ability to continue your work on a different device is just another way to work, but supporting that doesn't mean they can't offer other options.
One thing Apple believes is that they should cannibalize their own markets before someone else does it, and it won't stop people with more heavy duty needs (photo/video editing, etc.) from continuing to buy proper Macs. An iPhone could handle browsing, word processing and other Office related tasks, but wouldn't be suited to stuff that stresses even a high end x86.
If someone rings you up, you click on the 'accept call' dialog that pops up using your mouse, and use the built in mic/speaker in the phone, or possibly in the keyboard/mouse. There isn't any requirement to stop the OS X interface to take a call, you can run any app while on a phone call (iOS supports full multitasking like OS X, they just don't expose that to third party apps presumably to prevent them from chugging away in the background and killing the battery)
There are wireless HDMI standards but they are fairly power hungry, and running the OS X GUI and applications is likely to be pretty hard on the battery so a wired connection to the monitor that allows the iPhone to suck power from the monitor makes a lot more sense.