WordPress(WP) 1.2.1 is released at October 6, 2004. The new version fixed some bugs and security issues, plus backported the new friendlier login system from 1.3.
[ Read more @ WordPress.org ]
Upgrading from WP1.2 is very easy, just download the new version and replace ALL existing WP files. WP 1.2.1 should compatible with all existing templates and plugins.
Note: I recommend you backup ALL the files before replace them.