What's the main difference between Intel processor generations?

The term Generation is loosely applied to Intel processors to mean new and significant developments in processor architecture or functions.

• A second generation Core processor is the family of processors known as Sandy Bridge, which among other things introduced shared cache and placed the memory controller, graphics and CPU on the same die. The first generation was composed the Core i3, i5 and i7 processors launched early last year.

• The term can also be seen sometimes applied to processor families. The Core family of processors can sometimes be talked about as having had 3 generations (Lyndfield, Clarkdale and Sandy Bridge). But some processors like the i7, had more or different families (the Bloomfield and Gulftown). Example.

• It can also be used to name different factory models within a similar architecture. Again, sticking to Core processors, The Core 2 Duo, Quad and Extreme being mentioned as one generation different than the i3, i5 and i7, while the sandy Bridge being the 3rd generation of Core processors. Example

All in all the term is not officially connoted to the media. Intel does seem to favor the term as meaning significant architecture and factory processing changes within the same family of processors. And they are ultimately the ones deciding what is named 2nd, 3rd, 4th and so on generation. They do it often. But the term has come to mean other things too, since Intel itself has never tried to enforce it. Hence being a term that can have both official and loose connotations, depending on the context.

This question is very broad, but the often the biggest difference is that they have been able to miniaturize the transistors, allowing for less energy usage, and less heat.

Of course, they can also change features, but this will vary with every comparison you could put forward. Here is a comparison of the i3:

Intel introduced the 1st generation Core i3 processors in 2010 and the 2nd generation Core i3 processors in 2011. The 2nd generation Core i3 processors are built on the Intel’s Sandy Bridge architecture, which is 32nm microarchitecture, while 1st generation Core i3 processors were built on Intel’s Nehalem architecture. Additionally, 2nd generation Core i3 processors include new features for improving the graphics performance of the processors such as Intel Quick Sync Video, Intel InTru 3D / Clear Video HD and WiDi 2.0 that were not available in 1st generation Core i3 processors.

http://rapidhow.com/2011/06/12/intel-core-i3-vs-2nd-generation-intel-core-i3-processors/

Wikipedia has a timeline of "generations", CPU models and new features introduced in them. But note that its generation count already disagrees with yours (it goes up to 9) and doesn't correlate with any clear technical property such as bus size or CMOS process size.

IMO the word "generation" as applied to CPUs is poorly defined and marketing driven - just a fancy way to say "this isn't just a new model, it's fundamentally better, so you must buy it!"