The rumor comes from noted leaker Evan Blass, who isn't often wrong about these things.
So the leak is light on details, but we have some ideas on what an iPhone 6c might offer.
The iPhone 6s and 6s Plus will reportedly mimic their predecessors' shape and size, as is typical in an off-year iPhone release. It's widely acknowledged that Apple had to make its phones bigger to remain competitive, but not everyone loves a 4.7-inch or 5.5-inch display. A 4-inch iPhone 6c with Apple Pay support and an A8 processor, plus some colorful casing (similar to the sixth-gen iPods), would be a solid addition to the iPhone lineup. It would also let Apple sell a relatively "cheap" model--likely $99 for a 16GB version under contract--with the same specs as an iPhone 6. Read Jason Snell's thoughts on why this move would make sense for Apple.
Why this matters: The iPhone 6c is still just rumor mill fodder for now, but it's a device that many small-handed iPhone fans would snatch up. Plus it allows Apple to phase out the the 5s and 5c and bring its 4-inch model up to speed. Would you buy a 4-inch 6c Let us know in the comments.