After updating my iPhone to iOS 5.x.x I noticed that my text message bubbles are blue instead of green. So, I looked into it-

From the Official iPhone User Guide

Messages supports text messages with other SMS and MMS devices, and with other iOS devices using iMessage. With MMS and iMessage, you can also include photos, videos, and other info. Use iMessage to send messages over Wi-Fi or cellular data connections to other iOS 5 users. You can see when the other person is typing, and let others be notified when you’ve read their messages. Because iMessages are displayed on all of your iOS 5 devices logged in to the same account, you can start a conversation on one of your devices, then continue it on another device. iMessages are also encrypted. Note: SMS and MMS require a cellular connection, and may not be available in all areas. Cellular data charges or additional fees may apply.
Send a text message: Tap , then tap and choose a contact, search your contacts by entering a name, or enter a phone number or email address manually. Enter the message, then tap Send. Note: An alert badge appears if a message can’t be sent. Tap the alert in a conversation to try sending the message again. Conversations are saved in the Messages list. A blue dot indicates unread messages. Tap a conversation to view or continue it. In an iMessage conversation, your outgoing messages appear in blue.

iMessage:

iMessage allows you to send unlimited text, photos, videos, locations, and contacts using Wi-Fi or 3G* from your iPhone, iPad, or iPod touch to other iOS 5 users. For more information on how to use iMessage, see the user guide for your iOS device.

A valid Apple ID is required to use iMessage on iPad and iPod touch. A valid phone number or Apple ID is required to use iMessage on iPhone.

Note: On iPhone, if iMessage is unavailable, the message may be sent as SMS or MMS, depending on content. Carrier messaging rates may apply. You can turn this on or off in iPhone at Settings > Messages > Send As SMS. Messages sent using iMessage will appear in a light blue bubble, while messages sent using SMS or MMS will appear in a green bubble.

 
 

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