According to the documentation, the 2.1 update provides:
1. Faster backing up of the iPhone
2. Faster synching
3. Faster Contacts browsing
4. No more crashes
Other than that, it doesn’t do anything.
If you are on any other version of iPhone software starting with a 2, get this update. You won’t be sorry. If you are on a 1.0 version of the iPhone software, contact me and I’ll explain why you might want to upgrade.