According to an official Google post:
The reason is that we wanted to develop a set of icons that would scale better to some new platforms like the iPhone and other mobile devices. So the new favicon is one of those, but we’ve also developed a group of logo-based icons that all hang together as a unified set.
To me, its an obvious play on the infinity sign - Google ad infinitum.
The new icon has yet to grow on me. The old one, whilst old-fashioned, was immediately recognisable as part of the Google brand.