iOS 4.1 features: HDR photos
iOS 4.1 adds HDR photo capability to the iPhone -- and now iPod touch -- Camera app. HDR stands for high dynamic range and usually involves a photo with one or more identical photos that are over and under exposed and then combined together so that far more light and shadow information is available than a single exposure would allow. These high dynamic range images can then be tone mapped to provide a far greater amount of detail, far more like what the human eye can see. (That's my lay person, non-photo geek understanding of it anyway -- feel free to tear me apart in the comments, but only if you can explain it better).
So basically, you can see detail in the sky and in the shadow under the tree, rather than having one blown out or the other lost to black.
To enable HDR you simply tap the HDR button, much like the LED Flash button under iOS 4. Then, when you take the picture, iOS takes not only the regular shot but one overexposed and one underexposed. Shooting the picture seems to take roughly the same amount of time, but saving it takes noticeably longer.
So far, based on the results we've seen online, iOS HDR does a good job pulling color and detail back into what were previously blown out skies, but an only okay job revealing detail in shadowy areas.
For non photo geeks, however, all they'll notice is better pictures with bluer skies and brighter people, which is probably why Apple added the feature in the first place.