Link to the release notes. Reprinted here...
Go get it!
General:
* greatly improved merge tool configuration, see "hgrc.5.txt" for details
* improved copy/rename handling in diffs, status, and merge
* files in .hg inherit permissions from .hg/store
* infer --repository when possible, so commands may be run from anywhere.
* easy-installable
* new "droplet" logo
Commands:
* archive: disable ".hg_archival.txt" file addition with "ui.archivemeta"
* bisect: now built-in with greatly improved performance and usability
* bundle: new --all option to bundle the whole repository more easily.
* cat: apply decode filters with --decode
* clone: can clone from a full-history bundle
* commit: warn when creating a new head
* debugancestor: index argument is now optional
* diff: set the number of context line to show with -U/--unified
* grep: display matched revisions commit date with --date
* import: new --no-commit and --user options
* incoming/outgoing: add --limit option
* log: use -b/--only-branch to show revisions of a single branch
* remove: improve handling for --after
* revert: major speedup
* serve: prefix the served path with --prefix (also in [web] section)
* status: unknown files are skipped by --quiet
* tag: allow multiple tags to be added or removed
* tags: --verbose flags local tags
* update: switch between named branches without -C
Extensions:
* churn: promoted to an official extension (previously in contrib)
* color: new extension coloring "status" and "qseries" command outputs
* convert:
* allow synthetic history to be spliced in with --splicemap
* support GNU Arch and Monotone sources
* svn: allow shallow conversions of single branches with convert.svn.startrev option.
* svn: make trunk/branches/tags layout detection more flexible by allowing either of them to be skipped.
* svn: preliminary support as a conversion target
* hgk: configuration file changed from .gitk to .hgk
* highlight: new extension enabling syntax highlighting in hgweb file view (requires pygments)
* inotify: new extension using Linux 2.6 inotify API for instant status checking
* keyword: new extension for filewise RCS-keyword expansion in working directory
* mq: new --currentdate, --date, --currentuser, and --user options
* record: add "qrecord" command when used with mq
* win32mbcs: new extension dealing with problematic MBCS behavior on Windows
Web interface:
* improved WSGI integration and compatibility
* follow symlinks in hgwebdir collections
* show branches in most of gitweb templates
* add line anchors to annotate, changeset, diff and file views
* support web.baseurl in hgwebdir, overriding SCRIPT_NAME
Hooks:
* standard hook to reject text files with CRLF in win32text extension
* redirect stdout to stderr for ssh and http servers
Windows support:
* "hg" script output set to binary mode for redirecting diff, export, annotate, etc.
* also search for .hgrc if mercurial.ini cannot be found
* major speedup of "clone --pull"
