What happened to processor speeds? Do we measure differently?

Gigahertz are only a useful measure when comparing processors with similar architectures. The Pentium 4 was extremely inefficient, but was designed in a way that it could run at a very high clock rate (up to 10 GHz was planned). The Core 2 Duo and later are more efficient, but they don't clock quite as high.

http://en.wikipedia.org/wiki/Megahertz_myth

We still measue the same way, but CPU's have gone multi-core (physically more than one CPU on a single chip). That means where a Pentium 4 CPU was capable of reaching 3.6 GHz, the new Dual-Core CPU's running at say 2.6 GHz effectively runs at a combined speed of 2 x 2.6 = 5.2 GHz. See the improvement? Now imagine the Intel i7 Extreme 975 CPU's, with up to 4 CPU chips in a single package, each running 3.33 GHz. That's improvement and SPEED!!!!

Those were the days where CPUs are in their single core form. Nowadays most CPUs are using dual core, which means the clock speed is 2x. For example, it is very common to see a Intel Core 2 Duo 2.13GHz CPU: it actually means there are 2 CPU cores running at 2.13GHz individually, which, in theory, equals to a 4.26GHz single core CPU... which is, theoretically faster than the P4 3.6GHz.