With iOS 4.1 Apple implemented a HDR (high dynamic range) function for the built in camera of the iPhone 4.
Cameras have much more restricted capabilities to cover differences in light than the human eye.
To overcome these limitations HDR means to take several exposures of the same subject. Each exposure is taken at the same aperture but at a different speed. Apple is using 1 underexposed image, 1 normally exposed image and 1 overexposed image. Right after the shot these 3 images are combined to 1 single photo. This image now shows a much higher dynamic range as the standard image you would obtain. Look at some test shots here, comparing normal to HDR:
Normal:

HDR:

Normal:

HDR:

Posted from Bogis-Bossey, Vaud, Switzerland.