One of the nice things about iPhones is that you can download apps or applications.  Apps are programs that have been designed to run on your iPhone.

For example, one of my apps is the Bible with 32 different translations.  With this app, my iPhone becomes my Bible.

But, the number of apps that you can load onto your iPhone is dependent on the amount of memory in the phone.  So, the more iPhone memory, the more apps.  Thus, the need for the upgrade.