Kindle 2: enhanced greyscale means improved image display
The display of Kindle 2 is enhanced from that of the original Kindle. Among the improvements: the Kindle 2 screen can display 16 shades of grey, as opposed to the original Kindle’s 4 shades of grey.
This makes a substantial difference in the quality of displayed images! KindleBoards member artsandhistoryfan posted an eye-opening analysis of the difference. Using images from the Wonder of Light photography site, she shows the quality difference between a 4-shades image (top image below), and a 16-shades image (bottom image).
A picture speaks a thousand words! While these are not Kindle screenshots, they give an idea of the improvements to be had from moving 4 up to 16 shades of grey.
You can also compare the above images with an 8-shades-of-grey images (comparable to that of a Sony PRS-700), at the thread.