The PS5 has been criticized for how it handles HDR since it launched. Whilst the PS4 would push in and out of HDR when a game didn’t support it, the PS5 would push HDR even if a game didn’t support it, prior to this update, causing incorrect brightness and contrast.
As noticed by The Verge, with the new update that launched tonight, you can now set HDR to be either Always On (this will push HDR even if a game doesn’t support it resulting in incorrect brightness/contrast) or choose HDR to only be on when a game supports it (it will switch to SDR if it doesn’t).
It is believed that the reason why Sony didn’t want to switch in and out of HDR is because it causes the brief black screen when booting a game, that would interfere with the super fast load times that was marketed as one of the biggest features of the PS5.
There’s also the ability to turn 120Hz on or off as a separate setting now, and you’re able to control HDMI Link based on both turning the console both on or off, so if you want your TV to automatically switch to the HMDI input when turning the console on, but not off, you can now separate those choices.