Read original post by Jan Slodicka at Resco Blog
What’s the difference between WP7.0 and WP7.1 projects?
As already mentioned the project properties offer the target selection. However, the things are not that simple. Old projects can be upgraded to WP7.1, but once you do that, Visual Studio does not let you downgrade the project back to WP7.0. (The corresponding option gets lost.) On the other hand, it is not difficult to bypass this limitation.
Check out the previous posts from this series: Part 1 | Part 2