I second this. I'm using Terminal.app for years now, dabbled with iTerm from time to time, but just couldn't see any advantage; since Terminal.app allows me to save window layouts and customize colors - so far, it's all I need from my Terminal emulator. The rest is the shell's job.
Mouse reporting. You can scroll text with mouse wheel, you can click on text and move the cursor there, so you can have say vim essentially behave like graphical vim (silly example I know, but still it's useful to some people). You can resize vim split windows with a mouse.
iTerm exports its color profile as shell variable, so you can have vim adjust its color theme to match the terminal theme.
It has better full screen support.
It has support for foreground/background color of the text the cursor is over, which Terminal.app does not have at all. This is why in vim if you cursor is over syntax highlighted element whose color is similar to the cursor color, it become incredibly hard to tell where the cursor is (esp. on large screen).
iTerm has "highlight cursor feature", to quickly show you where the cursor is (CMD+/). This is useful if you went away from the screen for a while and you come back, and can't immediately spot the cursor.
iTerm has better font rendering (more like GUI Vim) because it is a Cocoa view.
iTerm allows you to split terminal windows both horizontally and vertically.
The list goes on, but these are some highlights. Essentially, you have more control over your terminal.
So what is it?