Okay, this might be long, so listen.
Hangouts( just im hangouts, sms works just like normal sms) is an im chat service that is associated with your existing google or google plus account. If you have just a google account and want to hangout someone, that person will need a google account also and hangouts too. Type in their gmail (some other emails work too) as the sender and send a message. If the address is valid, your gmail address will appear on the other guys device as the sender, with the chat dialog as well. From there the conversation can go on, and the left side of the screen is for CURRENTLY RUNNING hangouts. If you want to start a new one, simply repeat the process. Of you both have gplus or one has one and one has another, simply type the gplus account name into the search contacts bar. When you find it, just tap and begin. If you have the gplus account, you will have to manually enter the gmail address like above.
I bid you farewell and good tidings on your journey.,,
That is all. The dark lord android speaks.
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I find your lack of faith in android disturbing.