This is great news for all of us geeks out there. So far Android has always used Yet Another Flash File System (YAFFS). The problem with YAFFS is that it is single thread, meaning that the dual-core processors we are expected to see in 2011 won't be any faster in the read/write department. Google is hoping Ext4 should help there. Another reason Google is changing the file system is improvements in data loss. Basically, YAFFS would not save all files to permanent storage right away due to the shear number of files Linux handles. This becomes a problem if your phone reboots for any reason before the file is saved to permanent storage.
Why should you care, you ask? With all the new features manufacturers are piling into smartphones today, like 14 MP cameras, 1080p video recording and playback and the ability to play flash video, the files are getting bigger and more complex. With this new file system things should run just a little faster and smoother. Now all we need is carriers to hit us with Android 2.3 (Gingerbread) updates.