Why can't I update my iPhone IOS 4.2.1. to later version?

Because iOS 4.2.1 is the end of the line for your phone. There are no further updates available.

You may find vintapps in the app store helpful. It has information on tons of the earlier apps still available.

I am afraid that Apple have decided that they will no longer be able to produce software updates for your iPhone as it is now an old phone. This is both a marketing decision and one based on hardware limitations on your iPhone. However, SolverWiz had given a great idea about looking for vintage apps that will work on your iPhone. Even if Apple did make new software for your iPhone, you would probably find that it would operate too slowly.

My suggestion would be to simply enjoy all that your iPhone can now do and consider an upgrade when that is possible. Upgrading iPhones, I especially if you use iTunes, is very easy.