Firmware is the software that runs the iPhone and provides much of its built-in functionality. This is a history of each version of the firmware (more commonly referred to as the iPhone OS), when it was released, and what it added to the iPhone.


iPhone Firmware History

iOS 5.1.1
Released: May 7, 2012
Added:

Improved reliability when using HDR photos from the lock screen short cut.
Solved a problem with 2G/3G network switching
Fixed bug with AirPlay playback
Increased Safari bookmark and Reading List syncing
Removed an incorrect error that would report a failed iTunes Store purchase even when the purchase succeeded.
iOS 5.1
Released: March 7, 2012
Added:

Support for third-generation iPad
Updated camera app for third-generation iPad
Updated Camera shortcut from lockscreen
Genius Mixes and Playlists for iTunes Match
Japanese support for Siri
Update AT&T network indicator to show 4G in many locations
Bug fixes
iOS 5.0.1
Released: Nov. 10, 2011
Added:

Fixed battery-related and Documents in the Cloud bugs
Support for multitasking gestures on original iPad
Improved Siri voice recognition for Australian users
iOS 5
Released: Oct. 12, 2011
Added:

Support for iCloud and iTunes Match
iMessage
System-wide integration of Twitter
Notification Center and updated lock screen to include notifications
Built-in Reader and Reminders apps; a read-later and to-do list app, respectively
Tweaks to the Camera app to add a camera shortcut to the lock screen and the ability to use the volume up button to take photos
Formatting-related tweaks to Mail app
Newsstand, a new app for reading magazines purchased through the App Store
Tweaks to Game Center app, including support for turn-based network games
iOS 4.3.5/4.2.10
Released: July 25, 2011
Fixed:

Fixes bugs and security holes
iOS 4.3.4/4.2.9
Released: July 15, 2011
Fixed:

Fixes bugs and security holes
iOS 4.3.3/4.2.8
Released: May 4, 2011
Fixed:

Reduces the size of the location awareness cache
No longer backs up location data during sync
Deletes location data when Location Services are turned off
iOS 4.3.1
Released: March 25, 2011
Fixed:

Graphics problem on 4th gen. touch
Bug when activating/connecting to wireless networks
Image flicker on TV out using Apple Digital AV Adapter
Problems authenticating to some web services
iOS 4.3
Released: March 11, 2011
Added:

Adds support for iPad 2
Adds the Nitro Javascript engine to Safari browser
Adds improvements to AirPlay
Adds support for Home Sharing and Personal Hotspot (iPhone only)
Adds preference to make volume mute button either that or screen rotation lock
Does not support Verizon iPhone
Drops support for iPhone 3G and 2nd. gen. iPod touch
iOS 4.2.5
Released: February 10, 2011
Added:

Adds support for the Verizon cellular network
Adds 3G Mobile Hotspot functionality for CDMA iPhones
iOS 4.2
Released: November 22, 2010
Added:

Brings all iOS 4 features to iPad
AirPrint wireless printing
AirPlay support
Extends GameCenter support to iPad
Free Find My iPhone service
Search in page in Safari
Software-based screen orientation lock for iPad
Assign unique tones to individual SMS senders
iOS 4.1
Released: September 2010
Added:

High Dynamic Range photos
Game Center
Many bug fixes (proximity sensor, Bluetooth, iPhone 3G)
iOS / iPhone OS 4
Released: June 22, 2010 for iPhone and iPod touch | Fall 2010 for iPad
With this release, the iPhone OS was renamed iOS
Added:

Multitasking
Folders to organize apps
Unified email inbox and threaded email conversations
Improved security and business features
iBooks for iPhone, iPod touch
iAd
100+ other fixes and features
Drops support for the original iPhone
iPhone OS 3.2
Released: April 3, 2010
Added:

This version of the OS is specific to the iPad and adds features and functionality for that device
iPhone OS 3.1.3
Released: Feb. 2, 2010
Added:

Improved battery status reporting
Fixes bug related to apps not launching
Fixes bug related to Japanese Kana keyboard
Various security fixes
iPhone OS 3.1.2
Released: Oct. 8, 2009
Added:

Bug fixes for network connection lost and problems waking from sleep.
iPhone OS 3.1
Released: Sept. 9, 2009
Added:

App Store Genius. Like the Genius feature for music, this tool recommends App Store programs based on what the user has previously enjoyed.
New Ringtones. While previous ringtones were user-creatable through iTunes, users can now buy pre-made ringtones from record labels through the included iTunes Store app.
iPhone Firmware 3.0
Released: June 17, 2009
Sneak Preview: March 17, 2009 Added:

Copy and paste
MMS, aka multimedia messaging service; text messages with photos and videos
Bluetooth connections between iPhones and iPod touches (the OS also unlocks the Bluetooth hardware included, but not currently used, in the second-generation iPod touch)
Bluetooth stereo streaming
Spotlight search functionality on the home page
Tethering, to allow use of iPhone as modem for computers (for an additional fee)
Background push notifications so apps can deliver content when they’re not being run
Support for peripherals through the dock connector
New app: Voice memos, which does what you’d expect from the name
A rev Stks app
Landscape mode in mail, text, and notes
Voice Control of phone and iPod (iPhone 3GS only)
Notes that can sync to Macs and PCs, unlike in the current OS
Form auto-fill and anti-phishing tools in Safari
Shake-to-shuffle in the iPod app, a la the 4th-generation iPod nano
The ability to rent and purchase movies, TV, and audiobooks over the air
Parental cotrols and ratings for apps, iTunes content, etc.
Find my iPhone feature for lost phones via MobileMe; includes remote deletion of data as an option
Support for 30 new languages
Purchases within apps now supported, works in paid apps only