An interesting thing happened immediate after The Big Show where the iPhone 4S was announced. People started to grumble, saying things like "it isn't all-new" and "it doesn't have a 5-inch screen with Retina Display HD," and even "it doesn't have 4G" (only the fake 4G that AT&T is trying to pass off as the real thing). And clearly these people have a point. But, remember that Apple only needs to sell you a new iPhone every two years, so they didn't need to make this iPhone all-new compared to the iPhone 4. What they really needed to do was to make it all-new compared to the 3GS, which is who got to upgrade this time around. And I think that they succeeded pretty well at doing that. However, I promise that the next iPhone will be all-new and improved, just in time for everyone with an iPhone 4 to plunk down $649 (for most of us, that comes out to $200 now and $449 over the course of a 2-year contract).
So the outside of the iPhone 4S is basically the same, and that's all most people really notice. The inside, however, is all-new. And that is what really truly counts, and allows Apple to do its magic, like Siri and the HD version of Infinity Blade. So, even though most people couldn't give a damn what is inside of their phone (as they shouldn't), it is still pretty important.
The last time that Apple gave the iPhone this big of an internal upgrade was actually the 3GS, which most people perceived as another ho-hum upgrade. When the 3GS came out, Apple used pretty much the same marketing, "Twice as fast with a much better camera." The problem is that people don't respond well to clock speed comparisons - you can't see the clock speed like you can a new case design. At least you can see the results of a better camera - the pictures look better. But internal upgrades are difficult to sell to consumers, even though at the end of the day they are what actually push the platform ahead.
So let's look at what you actually get with the "not a real upgrade" 4S. With the 3GS upgrade, we went from a CPU that could just run the iOS to one that was capable of running multiple applications at once. Notice that the 3G could barely run iOS 4, while the 3GS keeps up just fine when upgraded to iOS 5. The internals of the 3GS and the 4 are actually pretty similar - when you consider that the 4 has to drive the "retina display," the slightly upgraded CPU just levels the playing field. With the 4S, you get another CPU doubling - instead of one ARM A8, you get two A9s. This gives you over twice the processing power, since an A9 is actually faster than a comparably clocked A8. As for the Graphics chip, it contains two cores, each of which is about twice as powerful as the Graphics in the iPhone 4 (for a total of at least 4x the processing power). Overall, this pretty much equates to a generational shift, the first in over two years on the iOS platform. The 4S will be pumping out pixels long after the 4 has been retired (iOS 7 anyone?). More importantly, the enhanced processor enables a whole host of new applications, including Siri (some people will argue that Apple intentionally crippled Siri, but I don't buy this - Apple has never intentionally crippled its devices). It will take a while for games to take advantage of this, but I'm sure that we will see a shift towards more demanding applications (with use cases that we can't currently imagine).
I would argue that Apple's "small" upgrades are actually the most significant - they tend to keep the outside the same when radically altering the architecture. The original Macbook Pro looked very similar to the Powerbook it replaced, even though it was all-new inside. Ditto for the new iMac vs the G5 models - from the outside they looked basically identical. While at first the old and new machines seemed somewhat similar, the new ones were vastly more powerful, and eventually supported many more software capabilities. Likewise, the recent Macbook Air upgrade took the platform from being somewhat anemic to a replacement for Apple's previous low-end machines, including both radically faster processors (Intel Core i5 and i7) and faster connectivity. I predict that the Airs will eventually disrupt the Pro models, rendering them unnecessary (although it will take a few years).
So, in summary, the upgrades that are the most visible aren't always the most significant, and the biggest upgrades sometimes don't appear so at first. Over time, the capabilities that matter the most are the ones that allow devices to do new things, rather than just allowing them to keep doing the same old things.