Assuming you're referring to the iPhone 3G when you say the iPhone 3...the differences are quite numerous, here's a run down of a few major ones...
- Retina Display
- Camera (5mp with 720p video recording); also, front facing camera for FaceTime
- A4 chip
- Glass improvements on front (gorilla glass performance) and glass rear panel
- Improved speakers (for playback and speaker phone)
...i could keep going, but you get the point. The iPhone 4 is the preferred phone, common sense would tell you that without even knowing the feature differences.