On paper it is suppose to be a slightly better camera with a bump to 3.2 megapixels and now with auto focus.
The auto focus now brings the camera inline with other smartphone on the market on paper. However, the iPhone actually beats most smartphone on the market due to two simple things that most photographers will enjoy. Selectable AF using the touch screen and metering at the AF point. I'll go into why this is huge step forward below.
Selectable AF is probably a first on any camera phone, basically it allows you to tap anywhere on screen and the camera app will focus on that spot. This is a huge thing as it now allows you to select an object to focus one instead of having the AF guess which object you want to focus or in the case of older iphones no AF at all.
Here is a 3GS vs 3G/1st Gen photo
Notice how the 3GS version is nice and sharp and the 3G/1st Gen is rather muddy.
Here is another images of selectable AF.
The next big thing is obviously the improved metering. The camera app now meters at the AF point selected instead of full frame evaluative.
Here is a image of the 3GS focused on the keyboard. Notice the keyboard is bright but the screen is overblown just as it should be if I were to spot meter that area.
Here is another image with the screen in focus notice now the keyboard is underexposed.
Examples of when this will be useful is say capturing a sunset behind a person when you want a person's face to be well lit. On the 3G this person will be a dark shadow but on the 3GS they will be correctly exposed. The difference between a great photo and a throw away shot.
Some more sample shots