Mostly, (for me anyway) it will allow for true high definition audio for the new HD-DVD, Blu Ray, and other new devices, (PS3, etc). It also doubles the available bandwidth.
From hdmi.com
HDMI 1.3 capabilities include:
Higher speed: HDMI 1.3 increases its single-link bandwidth from 165MHz (4.95 gigabits per second) to 340 MHz (10.2 Gbps) to support the demands of future high definition display devices, such as higher resolutions, Deep Color and high frame rates. In addition, built into the HDMI 1.3 specification is the technical foundation that will let future versions of HDMI reach significantly higher speeds.
Deep color: HDMI 1.3 supports 30-bit, 36-bit and 48-bit (RGB or YCbCr) color depths, up from the 24-bit depths in previous versions of the HDMI specification.
Lets HDTVs and other displays go from millions of colors to billions of colors
Eliminates on-screen color banding, for smooth tonal transitions and subtle gradations between colors
Enables increased contrast ratio
Can represent many times more shades of gray between black and white. At 30-bit pixel depth, four times more shades of gray would be the minimum, and the typical improvement would be eight times or more
Broader color space: HDMI 1.3 removes virtually all limits on color selection.
Next-generation “xvYCC” color space supports 1.8 times as many colors as existing HDTV signals
Lets HDTVs display colors more accurately
Enables displays with more natural and vivid colors
New mini connector: With small portable devices such as HD camcorders and still cameras demanding seamless connectivity to HDTVs, HDMI 1.3 offers a new, smaller form factor connector option.
Lip Sync: Because consumer electronics devices are using increasingly complex digital signal processing to enhance the clarity and detail of the content, synchronization of video and audio in user devices has become a greater challenge and could potentially require complex end-user adjustments. HDMI 1.3 incorporates an automatic audio/video synching capability that allows devices to perform this synchronization automatically with accuracy. (this is a big issue with some receivers where the audio does not sync with the devices, mostly Xbox 360 though)
New lossless audio formats: In addition to HDMI’s current ability to support high-bandwidth uncompressed digital audio and currently-available compressed formats (such as Dolby® Digital and DTS), HDMI 1.3 adds additional support for new, lossless compressed digital audio formats Dolby® TrueHD and DTS-HD Master Audio™.