The Camera app in iOS 4 adds a 5X-digital-zoom slider above the shutter button. The slider is easy to access, but the pictures can get a bit blurry if you zoom in a lot (optical zoom is not available on the iPhone).
When you first open the Camera app in iOS 4, it asks you for permission to acquire geolocation data. You'll see this data in action in the Photos app, in a new feature called Places; your photos appear on a map based on where you took them.
The upgrades aren't limited to your still photos, either. When taking videos, you can now tap to focus on your subject--just as you do when taking photos.