If you have that person as a contact in Google Talk its letting you know that they are not available. If it is a green dot they are available and a orange dot means they are idle/away. It's handy if you are on a limited texting plan ... you can send your message via Google Talk instead.
If you use Tango it puts those X's next to your contacts that also use it. Don't know why they went with an X to represent that though.