Just a month ago I wrote my frustration about a lack of iTunes updates (they keep updating the store, but not the application itself). Well, lo and behold! There's an update. While they still haven't added smart tags like I wanted, they've improved the browsing views (it just looks snazzier) and added the "Genius" feature.
Genius is a lot like Pandora, an online service that creates a playlist based on an artist or song that you specify. Pandora uses their own database of music, so you get to hear music that you haven't paid for, but since they can't get the rights to play any song for free, you don't get to pick which song you hear when.
Genius is different because it uses your own collection (so you don't so much get exposed to new music), but you have more control over what plays when. It does have a function to reccomend songs in the iTunes store that are like the one(s) you're playing, but I think that function was already available and probably nobody used it, because who wants to see commercials while they're listening to music? The other problem with the old reccomendations system is that it didn't know what you already own (and neither did I) unless you bought it from iTunes, so it would often reccomend music that I already own. It looks like they fixed that with the Genius sidebar.
I think the most valuable part of this update (for me) is that the Genius picks out music that I didn't know I had, and groups it with similar music.
Wired.com wasn't incredibly impressed with the update.