Does it really matter? That depends largely on your frame of reference. The pixel density of the iPad mini is just 163 pixels per inch (ppi), compared to 264 ppi for the third- and fourth-generation iPads, 326 ppi for the latest iPhone and iPod touch models, 227 ppi for the new 13-inch MacBook Pro with Retina display, and 220 ppi for the 15-inch Retina MacBook Pro. If you're accustomed to one of those displays, the iPad mini's lower pixel density is immediately noticeable. This is especially the case with text, which is blockier, but everything--graphics, images, interface elements, you name it--just looks less sharp.
That's surely disappointing to Retina veterans who've been pining for an iPad mini for reading. An iPad this size with a Retina-quality display would be a near-perfect reading device: all the great reading apps and services available for the iPad, in a smaller, lighter, book-sized package. Even Google's Nexus 7, which I've been using for just that purpose, offers slightly clearer text, with a pixel density of 216 ppi. (It's worth noting, however, that in other areas--brightness, color, contrast, and the like--the iPad mini's screen seems better, and I prefer the iPad mini's screen overall.)
At the same time, if you're coming from an iPad 2 or an original iPad, the iPad mini's screen looks considerably better. That's because these older iPads offered 1024 by 768 pixels in a 9.7-inch (diagonal) screen, whereas the iPad mini has the same number of pixels in a 7.9-inch screen--the 163-ppi pixel density of the iPad mini is considerably higher than the 132 ppi of the older iPads, as well as that of every non-Retina Apple laptop, iMac, and display. For example, I spend my days using a 2010 27-inch iMac, and the iPad mini's screen has a higher pixel density and makes the same text look better. In other words, if you're coming from an older iPad or Mac, the iPad mini's screen will be a clear (no pun intended) upgrade.
I should also point out that while the iPad mini's screen looked noticeably non-Retina to me when I first started reading on it (after seven months of daily use of Retina iOS devices), I did acclimate. I went cold turkey with the iPad mini, using it as my only iPad for three days, and by the end of that test, I still noticed the lower pixel density, but the difference wasn't nearly as glaring, even though I was still using an iPhone 5 alongside it. That won't be the case for everyone, and I will of course welcome a Retina iPad mini when it comes along; I'm just saying that the non-Retina display wasn't a deal-killer for me. I still enjoyed long sessions reading the Instapaper, Kindle, iBooks, and Reeder apps, and I liked the iPad mini's smaller size and weight more than I disliked the fact that it didn't have a Retina display.
A reality check: Most people in the world--and the overwhelming majority of people who don't already own a recent iPad or iPhone--have never used a Retina-quality display, let alone used one regularly enough to find the iPad mini's screen lacking. I showed the mini to a few people who haven't yet joined the Retina club, and they were thoroughly impressed by the iPad mini's screen. These are the people Apple is marketing the iPad mini to, not those of us who already have one or more recent iOS devices.
Despite the Retina controversy, giving the iPad mini a screen resolution (1024 by 768 pixels) identical to that of the iPad 2 was perhaps the savviest decision Apple made when designing the mini. It means that any iPad app compatible with the iPad 2 (which Apple still sells) works with the iPad mini with no extra effort on the part of the developer. And since even the latest iPad apps are written to work on both Retina iPads and the iPad 2, this means that the iPad mini has several hundred thousand native apps ready and waiting for it.
In fact, I think this app compatibility is a major reason Apple didn't offer a Retina display on the first iPad mini. For the iPad mini to be immediately viable, it needed apps. Not scaled-up or -down apps, but optimized apps. (Many people who use a Google or Amazon tablet are nodding their heads right now.) For both practical and technical reasons, I don't think Apple could have given the iPad mini a display with the full-size iPad's 2048-by-1536 resolution--consider that such a resolution at the iPad mini's smaller size would have given it the highest pixel density of any Apple product. So a Retina display on the iPad mini would have been one specifically optimized for the mini's size, and yet another resolution for developers to target. That would have meant only a handful of iPad mini-optimized apps available at launch, with other apps scaled up or down. I think a Retina iPad mini, with its own resolution, will happen someday (likely next year), but only after the iPad mini has sold in the millions and is an established part of the iPad lineup.
For now, any iPad app on the App Store will work with the mini. In fact, if you've already got a full-size iPad, you can restore your iPad mini from an iTunes or iCloud backup of that full-size iPad. I did that with one of the two iPad mini units I tested, and after a couple hours, the mini was a smaller-but-otherwise-identical version of my third-generation iPad, complete with several hundred apps and all their settings; the same playlists and videos; and everything configured and ready to go.
(For the record, upscaled 2x iPhone apps look just as bad on the iPad mini as they do on a standard iPad.)
You're holding it right
When I asked on Twitter and on App.net for questions people had about the mini, the second-most-popular topic (after questions about the display) revolved around what it's like to hold the iPad mini for extended periods.
The iPad mini's chamfered edges aren't just for looks; they also make the front edges more comfortable when holding the iPad mini in your hand. And though the squared-off back edges don't feel quite as nice as the tapered edges of the standard iPad, the mini is so much lighter that it's much more comfortable to hold for extended periods. Chances are, you won't be holding the mini with your hand all the way around the back, like the actors in Apple's TV ads do, but it's light enough to hold in portrait orientation by placing your hand behind the back and your thumb either on the bottom bezel or along the longer side.
If you're used to reading on a Kindle, the iPad mini can't match the light weight of the standard Kindle (six ounces) or the Paperwhite (7.5 ounces), but 11 ounces is still light enough for long reading sessions. Over the past few days, I used the iPad mini for several two-hour stretches of reading, and I had no complaints about the weight or size. It was a welcome change from reading on the standard iPad, which for me usually entails resting the iPad on my lap rather than holding it in one hand at a comfortable level. After using the iPad mini for a few days, my iPad 3 felt bulky and heavy.
Speaking of holding while reading, one concern I had about the iPad mini was that its thinner long-edge bezels would result in unintended touchscreen actions. Apple says iOS 6 on the iPad mini can differentiate between touching and holding, and I found this to be true. For example, the Instapaper app lets you go to the previous or next page of an article by tapping the left or right edge of the screen, respectively. If you hold an iPhone by placing your thumb along the edge of the screen, you'll either select text or, when you remove your thumb, flip the page. But holding the iPad mini by the edge of the screen does nothing--except let you hold the tablet comfortably. In my testing, touching the edge of the screen for a little less than a second and a half is interpreted as a tap; longer touches are ignored.
And while I'm on the topic of reading, a number of Macworld readers have asked about the iPad mini's maximum and minimum brightness levels. Compared to my third-generation iPad, the iPad mini's screen doesn't get quite as dark at the dimmest screen-brightness level, and it's not quite as bright at the brightest level. But these are very minor differences that you probably wouldn't notice unless, like me, you had the two devices side by side.