iPad—it’s way more powerful and easier to use. Multitasking lets you quickly switch back and forth between apps, while Folders gets rid of flipping through page after page of apps. Mail gets a unified inbox, finally and it forever changes the orientation lock to a mute switch—you now lock the orientation by double-tapping the home button and swiping to the left to reach a soft switch.
The AirPlay. New to the iPhone too, it lets you wirelessly stream videos and music from an iPad or iPhone to an Apple TV, hassle-free. AirPrint does the same wireless magic thing, but for docs and webpages—lets you wirelessly print stuff easily.
The free Find My iPhone service is slightly limited: Only iPhone 4, iPod touch (4th-gen) and iPad get it. Once you activate Find My iPhone using one of those, though, you can use the service for free on your older iOS devices too. Find My iPhone, if you didn’t know, shows where your lost iOS device is located on a map—as long as it has service—allows you to ping it with alarms and messages, or remotely detonate the information on it once all hope is lost.
Other things in iOS 4.2: new text ringtones for iPhone 4 (and only iPhone 4, weirdly), text searching inside of web pages in Safari, and the ability to use different fonts in the Notes app.