While the third edition of XML 1.0 simply focuses on bug fixes and clarifications, XML 1.1 actually updates the universal data standard significantly. Most important, XML 1.1 incorporates the recent developments of the Unicode standardization, allowing a lot more characters in XML element names. The way naming is defined has changed fundamentally:
The overall philosophy of names has changed since XML 1.0. Whereas XML 1.0 provided a rigid definition of names, wherein everything that was not permitted was forbidden, XML 1.1 names are designed so that everything that is not forbidden (for a specific reason) is permitted.
XML 1.1 also adds more line-ending options, spefically the NEL (#x85) character of the IBM mainframe world and the Unicode line-separator character (#x2028). While the standard ASCII control characters (#x1 through #x1F, except white-space) can now be included in documents by using character references. The control characters in the range of #x7F through #x9F, which were allowed to be included directly in XML 1.0, have to be addressed with character references as well. This means, that some XML 1.0 documents are not immediately compatible with XML 1.0 but I agree with the spec that this won‘t be a big of a problem. A set of conventions called “full normalization” should ensure easy identical behaviour when searching documents and comparing element and attribute names and values
A new XML version, rather than a set of errata to XML 1.0, is being created because the changes affect the definition of well-formed documents. XML 1.0 processors must continue to reject documents that contain new characters in XML names, new line-end conventions, and references to control characters. The distinction between XML 1.0 and XML 1.1 documents is indicated by the version number information in the XML declaration at the start of each document.
XML 1.1 won‘t have a big impact on development right now although I have no doubts some XML parsers will soon include support for it. But the new version addresses some questions that have come in recent years and have prevented some applications from using XML.
The namespace update for XML 1.1 changes the format for namespaces from URIs to IRIs and provides a means of undeclaring namespace prefixes (although I couldn‘t find the part explaining exactly how to do that).