This is one of the simpler questions that gets asked a lot and is easy to answer.
Use the latest version whenever you can!!!
Magento is always updating its code to implement new features, fix recently discovered bugs, optimize existing code, and generally improve the platform. If you go to Magento's site you can even find a list of every change each new release brings. Whenever these updates come out its in your best interest to upgrade to ensure you can take advantage of all this new, wonderful code.
There is a drawback however... Upgrading can be painful, dare I even say dangerous. Every time you upgrade Magento you have to make sure that every change you made to the code, every extension you've downloaded, every template you're using is compatible with the new "core" code. Every change is different so there's no set rule on how to check for these things, but the safest approach is to set up a test environment and try the new version of Magento there. This way, if anything goes haywire you wont affect your live site and you can continue to test until you work out all the kinks.
Separately, if your site isn't having any issues when a new version comes out then it can sometimes not be worth upgrading right away. Generally new releases will incorporate fixes and updates that you want, but if the changes aren't worth the effort of going through the testing necessary to upgrade safely then don't do it.
It's all balancing act, but it comes down to determining what's important to you. Do you need an update to fix or improve your site? Is it worth the time to go through the effort necessary to upgrade safely? Answer those questions and then you'll know when its time to upgrade.
