Apple announced that recently: \'Starting May 1, new apps and app updates submitted to the App Store must be built for iOS devices with Retina display and iPhone apps must a
If you read the iOS Human Interface Guidelines, it states devices the iPhone 5 has a compatability mode that centers the UI for applications which were never updated to fully support the 4-inch screen. From the sounds of it (and the rumours that float around), and this is pure speculation, the compatability mode will be dropped eventually. Meaning, you will have to support both screen sizes (3.5-inch and 4-inch) completely.
As for retina, it probably means all iOS devices will have retina displays in the future, so it is time stop scaling up graphics. In short, Apple likes stuff on their platforms to look good. We will probably know more in June after the WWDC keynote.