When you like what some else posts, whether you think its funny smart or whatever you give them karma.
you can give karma by clicking on the karma icon under that users picture or user name.
You give gray karma when your total karma points are bellow 50. Gray, while still appreciated, does not accumulate toward that users tota lkarma points. Once you have accumulated above 50 karma points yo uwill give out green karma, which does count toward a users total karma points. The more karma points you have, the more your karma hits count.
The green dots next to a persons post cout, while not giving you their actual karma total, it gives you an idea of their total karmic powers.