In an email to the WHATWG mailing list Ian Hickson explained how the relationship between the WHATWG and W3C effort around HTML has evolved. It is recommended reading if you want to know the details.
In summary, we will remain focused on improving HTML and related technologies to address the needs of users, developers, and user agents. The W3C HTML WG has decided to focus on producing a snapshot: HTML5. We anticipate the net effect to be accelerated development of the HTML Living Standard.