Apple uses these models numbers to distinguish between different hardware models. The original iPhone carries the model number of "iPhone 1,1" while the 3G iPhone is labeled "iPhone 1,2". These numbers do not change for simple storage increases and instead represent functionally different devices. Similarly, the iPod Touch was originally introduced as the "iPod 1,1" and the most recent hardware revision was labeled "iPod2,1". The 2,1 iPod Touch added a speaker, volume controls, microphone support and a much faster processor than the 1st generation model. This new model number can be found in the USBDeviceConfiguration.plist in an unencrypted firmware.
Rumors of the next generation iPhone point to the support of Multi-Core CPUs and possibly Multi-Core GPUs from Imagination Technologies.
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