Green bubble = SMS. Blue bubble = iMessage (data only, doesn't count towards text limits). I would assume the app would only let you use the new features with other iMessage users.
Even better, you can tell before you click "Send" whether the message will be green or blue, by looking at the color of the send button. Kinda nice, you can actually just enter any phone number in the "To:" field and wait a second, and check the color of the button. This will tell you instantly whether a given phone number is for an iPhone or not. Kinda neat.
