Chapters twenty-one and twenty-two deal with the literal versus the non-literal interpretation of Scripture. (see background articles and the Genre issues here: http://www.churchleadership.org/pages.asp?pageid=67280)
Is this passage, the debate is whether it is literal or fugitive. The “phraseology” in the language and word usage from Jeremiah and other places and the genre (literature type) tell us it is most likely metaphorical. Just because Jesus says He is the “bread of life,” it does not make Him a bakery product. This does not water down or neuter the meaning, but gives us more wonder, hope, and insight into His mighty work. Nor, is this subject worth a debate as it is not essential. When we argue on this, we miss the point of the passage!
The Literalist View: They see this passage as very literal, as in God will destroy the earth and all He had created, and remake it in some new form. This takes place at the close of the millennium. The New Jerusalem is Heaven, the eternal home for Christians. There are many versions of and theories on this, many of them nonsensical and humorous. Of course, God can do this; no problem. But, the passage comes from Isaiah and that is not what it meant then, thus probably is not literal for us either. But, if you are going to error in biblical interpretation, it is always best to error toward the literal.
The Non-Literalist View: They see this passage as symbolic, that John is using words the ordinary human language that cannot convey the wonders that God is expressing. How do you explain heaven, our eternal state of grace with Christ? Thus, this New Heaven is our eternity and the New Jerusalem is the Church on earth, as God dwells among us. They are many versions of this, too.