Perhaps one of the most notable parts of the announcement is the inclusion of HDR photo capability for the device.

The HDR stands for “high dynamic range”—the range between the lightest and darkest areas of the image—and the idea is that they look more similar to what your eyeball sees than regular photographs.

We’ve all taken photos with our iPhone that didn’t look as good as you wanted them to. Perhaps the lighting is off, or saturation is bad. Now you have HDR, when you turn on HDR it takes 3 photos in rapid succession: one normal, one under exposed, and one under exposed. It combines the three with some pretty sophisticated algorithms, and produces a stunning photo.

HDR photos have long been thought to be “gimmicky”, creating over-saturated photos. However on a smartphone they kind of make sense—tons of people use apps like Hipstamatic and Camera+ to jazz up their photos, and built-in HDR is bound to give iPhone some extra brownie points.

iOS 4.1 will be a free download available next week for both the iPhone and iPod Touch.