The faster video processing is due to its customized A4 video chip which can give up to 1080p HD, according to AppleInsider, and could upgrade video playback to HDMI rather than VGA. That means the playback on an iPad, iPhone or iPod Touch could be as good as a high-quality HD television (and Apple TV.)
The actual playback speed and resolution hasn't been verified by Apple, and just because it's capable of such speeds doesn't mean the iPhone or iPad necessarily will push the devices to the limit -- which could lead to great graphics but a slower machine. The iPad 2 is rumored to also be sporting a dual-core ARM Cortex-A9 CPU, a supposedly powerful processor that could handle the HD graphics without any jerkiness, but the iPhone 5's specifications are much murkier. All that's known so far is that it will be a completely redesigned iPhone with a multiple-core processor.
The speed boost isn't just for gaming and video watching, but also because it will support Apple's FaceTime, an important video-conferencing feature. Previously, I wrote about how Apple is hoping that its applications will draw more business customers to the iOS, and better videoconferencing and resolution is half the battle.