Until now, the in-app purchases intro'd with iPhone 3.0 were restricted to pay applications—presumably, over concerns of bait-and-switch tactics. Well, now developers can ask you to buy stuff in free apps, too, effectively allowing upgrades for free apps.
What that means, as Apple says, is that it eliminates the need to create "Lite" versions of apps, since devs can sell content, subscriptions, services and upgrades from free apps. The change sounds trivial, but it's actually a fundamental alteration of the App Store economy.
It effectively creates free trial apps, which couldn't be done before. Originally, free apps had to be standalone, fully functional apps, with very limited pestering to buy a premium version. At the point, you would go and purchase a separate, paid application. Now, developers can ship a single app with limited functionality that's completely unlocked when you pay the full purchase price. Or slip subscriptions or other services into free apps.The whole free vs. paid app is a completely different kind of calculus now.
We'll see what ultimately happens with this—especially 'cause we won't know what kind of invisible rules Apple will be enforcing—and whether it's a power that gonna be used mostly for good or for evil, but stuff's gonna start looking a lot different in the App Store.