You have v1 of your great app in the App Store, and therefore on all your devices. You are now starting to work on v1.1. The problem is that if you just bump the version number and keep building/provisioning with your current settings, when you install it on your device, it will replace the App Store version.
Yes, it will indeed.
I have only one iPhone and my testing is done on devices belonging to my fiends and relatives. Having one device is very comfortable but has it's tradeoffs: one of them is having different app versions of the same app simultaneously is a bit tricky. Nils Hayat discusses how to overcome that problem in a style.