When you allow Hangout to handle your text messages, you have two option to text the same person. One way is via SMS/MMS gateway and the other way is via Hangouts default chatting and sharing feature. The SMS/MMS method might charge you on the basis of the number of text messages and its length but the other method comes for free, provided that you are connected to the internet. This also means that you will have two separate conversation with the same person, one for SMS and the other one for online chatting.
Style and DesignGoogle Hangouts: Google Hangouts has got a really neat layout. The main page of your app displays your contacts with their name and phone number. Frequent contacts are displayed on top. People you hangout with are also displayed. Your preferred list of people, with whom you are in contact more often, are on top. You can easily start a new hangout by clicking on their name. You can also type their phone number to text them.
Native SMS App: This app is quite simple. The designs are quite simplistic. When you open this app, the list of your text messages are displayed along with the names of your contact on those text messages. You can easily start a new conversation with a new contact or open up an old conversation to send new messages. The display is simplistic and there aren't advanced search boxes to start a new conversation.
Winner: Google Hangouts has a much better layout and it is the winner in this.
FunctionalityGoogle Hangouts: With Google Hangouts, you get something much more than just a SMS app. You get to start new conversations on the go. You get to search for your contacts by email, phone number or name. You can manage different Google accounts. The touch-sliding use of phones to navigate is there. You can easily slide towards the left side of your screen to view your conversations. You can slide those conversations to archive them. Instead of just sending text SMS with limits, you could send pictures, emoticons or even video chat. The feature list is great and it is continuously upgraded with every new version of this app.
Native SMS App: The native SMS app is great for sending text messages and reading them. You can delete them easily. You can also attach media files and send it as MMS. Searching is also easy. But there aren't additional juicy functions like the ones Hangouts has. The functionality is quite simple.
Winner: Hangouts due to its added functionality over SMS wins.
Other ThoughtsGoogle Hangouts: Google Hangouts is just great. It has so many features and the design is also really great. You can start two conversations with the same person: one using SMS/MMS text messages which goes directly to the phone and the other using the great chatting features using the internet. Although, it clearly says "Send an SMS message" in the text typing box, you still might get confused and use SMS feature which can add some charge to your mobile bill. You might mistakenly think that you are sending hangout messages but instead you send SMS messages. This confusion can cost you. The added features sometimes come with a price.
Native SMS app: There is not much to complain about on the native SMS app. You send and receive text messages and sometimes exchange MMS messages. That is all there is about this app. It does what is supposed to do in a simplistic manner. People who like simple will be quite happy with this app.