The Doctor explains the regeneration process to Sarah. This is the first time that the term is used: the First Doctor was "renewed", the Second was sentenced to a change of appearance.
This is the first time that we see another Time Lord - K'anpo Rimpoche - regenerated.
It is established that a projection of a Time Lord's future incarnation can exist alongside his present one: Cho-je was a distillation of K'anpo Rimpoche's future incarnation. See also Season 18's Logopolis.