Android OS 1.6 for developers has been released, though frustratingly you'll need an Android Developer Phone - aka one of HTC's patterned, unlocked Dreams - in order to install it. The release gives developers an opportunity to get to grips with the latest build of Android, prior to OS 1.6 being pushed to consumer devices.
Android 1.6 brings with it support for alternative screen sizes, CDMA support and a new text-to-speech engine. There's also a new scaling algorithm, which means that developers may not have to rework their core software in order to suit different sized displays.
Even if you have a standard, unlocked Dream it will need to have the original factory bootloader (hboot 0.95.3000) or a development bootloader that supports fastboot in order to install the new build. We're expecting to see hacks putting 1.6 onto regular devices soon, but for most users you're probably better off waiting until an official OS release.