As it said it would do, Apple has made some changes to how it stores and manages the "iOS crowd-sourced location database cache." In particular, it reduces the size of the cache, doesn't back it up to iTunes and deletes the cache when you disable Location Services. Apple came under fire for storing all of your location data, and this addresses the bug.
This update is for iPhone 4 (GSM model), 3GS, the iPad 2 and 1st-gen iPad, iPod touch (4th and 3rd generation). Go get it by connecting your iOS device to iTunes and checking for updates.
We're likely to see updates for developers soon, if history is any indication. Also, iOS 4.2.8 is available for Verizon iPhone 4s, with the same changes to the location database.