Rockstar Games divide the Grand Theft Auto series into three distinct universes. These universes are completely separate to each other, no characters or storylines can ever pass from one Universe to the next.
|2D Universe||3D Universe||HD Universe|
|GTA 1 Era||GTA 2 Era||GTA III Era||GTA IV Era||GTA V Era|
A universe can be considered a completely separate 'canon' of places, people and events that do not exist in the other universe. Locations that appear in multiple universes are completely rebuilt, rather than just updated. A previous universe would be like a mythical universe that never really existed. However, some things do exist appear in multiple universes, including company brands, vehicles and weapons.
Games being in the same universe means that they exist on the same planet, and theoretically characters could occur in multiple games across that universe. However, that does not mean that many characters will do so, nor that the games are similar or closely related at all.
Comparison to Eras
Universes are closely linked to Eras, which are logical groupings of the games based entirely on their number (i.e. GTA III starting the GTA III Era). It is possible for universes to contain more than one era. The 2D Universe contains the GTA 1 Era and GTA 2 (which is its own separate era). The HD Universe contains the GTA IV Era and GTA V (which is starting its own era).
The difference is that games within an era are very closely related, often with many characters and storylines appearing in multiple games. Also, the visual style and most features are replicated within an era.
An era can be thought of as a group of closely-related stories (like a trilogy), told through several games within one universe. Different eras may be set in the same universe, even with a bit of crossover, but they are completely separate stories with different styles and a different feel.
As GTA V and GTA IV are in the same HD universe, that gives Rockstar the ability to continue some characters or even storylines into the new game, but Dan Houser has said this would only happen sparingly. GTA V is a completely separate game, with different features and a very different feel - it is not "GTA IV: Los Santos", and is not part of the GTA IV Era.
Dan says that no one before GTA IV will be in it – the move to HD created a schism in this fictional universe, rendering CJ, Tony and co, as mythical characters from a bygone era. But will we see stories from the previous game looping into this one? "I think that might be too mannered," says Houser. "Nico had a particular kind of story and we're trying to make this different. We might allude to things from that world, but we didn't want it to feel like, well, here's the opposite of an immigration story – we wanted a fresh take on what it means to be a criminal in this world of hyper-real Americana".
Interview with Dan Houser in The Guardian