An iMessage is similar to a standard SMS text message. However, it is transmitted via the new iMessage service in iOS 5, instead of through your wireless phone carrier. The messages application in your iPhone can send both iMessages, and SMS text messages. You can tell which is being sent, becasue iMessages are blue, and standard SMS text messages are the same green color you are used to. You can enable or disable iMessage in the message settings in iOS 5.
If you have iMessage enabled, your iPhone will automatically switch back and forth between iMessage and SMS depending on i) whether you have an active wifi or 3G data connection, and ii) whether the individual you are messaging also has a device that supports, and has enabled iMessage.
If you send an iMessage, you will not incurr a charge from your wireless carrier like you would for a typical SMS text message.
iMessage is Apple's Text Messaging service that uses your cellular data network to send Free text messages to other iOS 5 devices.iMessage uses Apple's Servers rather than your carriers servers (i.e. AT&T)
A text message, on the other hand uses your Cellular network to send Text Messages over your carrier- rather than Apple.
iMessages, like normal SMS messages can send text, pictures, video, location and contacts.