We've covered the goodness of iOS 4.2 before. It makes a huge difference with the iPad—it's way more powerful and easier to use. Here's a guide to why you want this update and what it has.
Multitasking lets you quickly switch back and forth between apps, while Folders gets rid of flipping through page after page of apps. Mail gets a unified inbox, finally. Oh, and it forever changes the orientation lock to a mute switch—you now lock the orientation by double-tapping the home button and swiping to the left to reach a soft switch.
The other big feature is AirPlay. New to the iPhone too, it lets you wirelessly stream videos and music from an iPad or iPhone to an Apple TV, hassle-free. AirPrint does the same wireless magic thing, but for docs and webpages—lets you wirelessly print stuff easily.
The free Find My iPhone service is slightly limited: Only iPhone 4, iPod touch (4th-gen) and iPad get it. Once you activate Find My iPhone using one of those, though, you can use the service for free on your older iOS devices too. Find My iPhone, if you didn't know, shows where your lost iOS device is located on a map—as long as it has service—allows you to ping it with alarms and messages, or remotely detonate the information on it once all hope is lost. Just grab the updated app right here after you've updated to 4.2.
Other things in iOS 4.2: new text ringtones for iPhone 4 (and only iPhone 4, weirdly), text searching inside of web pages in Safari, and the ability to use different fonts in the Notes app.
Plug your device into iTunes, hit check for updates and let the good times commence. Let us know how the update goes in the comments. [Apple]