A good overview of HTML 5 capabilities by J. David Eisenberg on A List Apart.

http://www.alistapart.com/articles/get-ready-for-html-5/

Some useful features are:

• Integrated regular expressions for form input validation.
• Support for Scalable Vector Graphics (SVG).
• A blank canvas object for drawing what you want, using Javascript. An example would be a real-time chart.
• Integrated video support, which could break dependance on Flash and Silverlight for web video presentation. If it will, remains to be seen.

It looks like early support can be expected with FireFox, Chrome, Safari, and Opera. Google, interestingly, is squarely behind the standard. IE support is lagging, which is a huge problem for adoption. I imagine that at some point, Microsoft may be forced to adopt, given the competition. We can likely expect another round of browser incompatibility.

Development tools seem lagging, and currently a good text editor or IDE seems the best bet.   Not sure yet of the level of commitment from Adobe / Dreamweaver given the potential for impacting Flash.