1. Go to Settings
2. Tap General
3. Tap Software Update
You will get a warning about doing this without the iPhone being plugged in to power, but my updates (on an iPhone 4S and an iPad 2) went perfectly even without being plugged in. They devices went down about two percent during the update. If you have more than 2% battery left, go ahead and get the download through the air.
The update took about 10 minutes (Time Warner cable modem). There are no options, no choices to make except at the very end of the download when you can either "Install" or do it later.
Considering how buggy iOS 5.0 is, updating to 5.0.1 is a no-brainer. Go get it.