This link gives you the main points. If you want a little more detail, I would check out the
Wikipedia entry about the iPhone. Apple never wants to tell you detailed specifications of the iPhone on its website, but the 3GS has a faster processor, more RAM, and a 3 MP camera that records video. It has a voice control feature (don't know why they don't have this on the 3G) where you can search, make calls, etc., by speaking. It also has a compass, which you may feel like you don't have much use for, but there are apps that make use of it in interesting ways with so-called "augmented reality." For example, apps where you point your camera in a certain direction and it shows you restaurants in the area marked over your camera's field of vision (boy, I'm not explaining that well). I also have a very cool astronomy app where you point the phone at the sky and it shows you which constellations you are facing based on your GPS position, date/time of year, and direction of the compass. I've always been a complete dunce when it comes to astronomy because I never could tell what constellations I'm looking at, but with this I can actually tell. The app also gives lots of information about everything you see. Pretty nifty.
Anway, I digress. I think if you could get either one, and especially if you're going to be locked into a new two year contract, definitely go for the 3GS. Using it is noticeably faster and it has other nice features. But the 3G is great too, so I don't think you would go wrong with that either.