There are currently several different versions of Android depending on the phone you've got.
Android 1.5 - Cupcake - Sprint Hero
Android 1.6 - Donut
Android 2.0 - Eclair
Android 2.1 - Eclair
Google released 1.6 around October, and followed up with 2.0 around December, and 2.1 in January. They (HTC and Sprint) are working on getting us an update to 2.1.
With the update we'll have better OpenGL support for 3D graphics, access to additional applications like Google Maps 4.0 with Google Nav and Google Buzz, Google Goggles, a new Apps market with application screenshots, better battery performance, faster operating system, etc. In addition we'll see the Sense user interface on the Hero's updated to support multi-touch (pinch to zoom in/out) on the home screen and in Google Maps.
It's a substantial update that we are hoping will be released next month. How they are going to update is still unknown. It can either be over the air and pushed to your phone from Sprint, or you may have to take the phone into a Sprint store for the update to be applied.
I hope that answers some of your question...