So far I've owned every iPhone model. This is the latest one and it's a big leap over the 3GS.
My favorite improvement on this new phone has to be the screen. The screen on this device is amazing. This so called "retina display" is the clearest, sharpest display I've ever seen on any electronics. It actually has a higher DPI than the last laser printer I bought. It's also a lot more contrasty than the previous iPhone screen, so blacks look a lot blacker.
Comparing this to the previous iPhone 3GS, it is a bit smaller and easier to hold, is faster, and the camera is better. I use the camera on my phone a lot, so this was important to me. In addition, it shoots HD video. Call quality seems clearer -- possibly because of the 2nd microphone. The speaker and speakerphone also sound a lot louder.