The 2.1 update contains many bug fixes and improvements, including a decrease in call drops, significantly improved battery life, reduced time to back up to iTunes and faster installation of third-party applications.
Apple indicates that the new 2.1 release also fixes bugs that caused hangs and crashes on systems that use lots of third-party applications, improves performance for text messaging, loads and searches contacts faster and improves the accuracy of the signal strength display for iPhone 3G models.
To update your iPhone, simply connect your iPhone to iTunes and synchronize it.
