This contest is interesting as, to date, the various by-elections since 2010 have all been in Labour-held seats. That the Tories may lose a seat in this manner will have two impacts.
Firstly, it will be another knock to Cameron - to add to the seemingly endlessly negative media narrative that surrounds him.
The second effect may be an interesting one, something that Mike Smithson over at Politicalbetting has recently discussed. A defeat for the Tories would mean that the electoral mathematics could allow a 'rainbow alliance' of the left and centre (including the Lib Dems) - but excluding the SDP - to have as many seats at the current coalition. This would strengthen the hand of the Lib Dems and further weaken the Prime Minister's bargaining position.