iOS 4.1 is mostly a bug-fix release, focussing on a number of issues people have been having on the iPhone 4 and iPhone 3G. The iPhone 4's proximity sensor and BlueTooth issues are supposed to be fixed in this new version, as well as the slowness issues people are having with iOS 4 on the iPhone 3G.
As for new features, it'll add support for High Dynamic Range photography, HD video uploads via WiFi, TV show rentals, and, of course, Game Center. It is scheduled to arrive next week for the iPhone and iPod Touch.
iOS 4.2 was also demoed by Apple, but not that much new information was given. It'll finally update the iPad to iOS 4, while also bringing wireless printing support (with print manager), and AirTunes so you can stream content to your iPhone, iPad, or iPod Touch. Scheduled for November.