I am planning to do a app which works on 3.1 and launches on 3gs as well. Please let me know how will it be displayed when launched at iTunes connect ? will it be like works on 3.1 and above and will get installed on iphone 3.1, 3.1.2, 3gs and 4.0.1 or just works on 3.1 alone. Please enlighten me what has to be done for working on all the 4 version devices.
It seems you need to read a bit about the Base SDK and Target SDK. It can be a bit confusion, your right. There is a very nice article at: Developing iPhone Apps with iOS4 SDK, Deploying to 3.x Devices
You should have no problem in making an app that runs on all the devices you want. I hope it helps.