Echo Dot 3 and 4 differ mainly in design, sound quality, and processor.
Design-wise, the 4th generation Echo Dot has a much sleeker, modern look compared to the 3rd gen Dot. The 4th gen is also available in more colors (glacier white, twilight blue, and charcoal), whereas the 3rd gen is only available in black.
Sound quality-wise, the 4th gen Echo Dot has a vastly improved speaker compared to the 3rd gen. The 4th gen Dot has a 1.6” speaker with a much fuller sound, whereas the 3rd gen only has a 0.6” speaker with a more tinny sound.
Lastly, the processor in the 4th gen Echo Dot is much faster than the 3rd gen. This results in quicker responses to commands, as well as smoother streaming of music and other content.