The new Core i5 processors were released in September 2009. As the name would suggest, these processors do not represent a new architecture but rather a mainstream release of processors based on the Nehalem architecture, which were previously available only as part of the Core i7 line.
Of course, the marketing of the new products indicates that they are intended to be seen as less capable products than the existing Core i7 processors. But marketing often sacrifices truth for simplicity. For example, Intel currently offers numerous products under the Pentium name, but these products are in fact Core 2 Duos and very similar to the Core 2 Duo branded products. Is Core i5 simply a marketing term, or does it indicate fundamental differences in the processor?

One of the most importance differences between Core i5 and Core i7 is the use of a new socket, known as LGA1156. This new socket will also be used by some Core i7 products, but current Core i7s use the LGA1366 socket. The new LGA1156 socket is partnered with a new chipset, the P55. As those who follow computing would guess, the P55 is designed as a mainstream chipset. This means less features, but lower cost. While the new LGA1156 socket and P55 chipset are important, they alone won't be responsible for any major performance difference.
In the future, the Core i5 line will remain on the LGA1156 socket, although Intel could add some variants of LGA1156. Core i7 will be split between LGA1156 and LGA1366.
As of January 2010, Intel has also debuted the new H55, H57, and Q57 chipsets. These chipsets are lower-end chipsets aimed for use with the new Core i5 600 series processors. They are not significantly different from P55 but are aimed at lower price systems.

One feature which will be responsible for a major performance difference is the improvements in turbo mode. The original Core i7 processors came with a turbo mode which allowed the processor to essentially over-clock itself automatically when some cores were not being used. The Core i7-965, for example, could hit 3.46Ghz when the turbo mode was fully active. Its stock speed is 3.2Ghz.
Intel has said this will be enhanced with the new Core i5 products as well as with the new Core i7 860 and 870. The Core i5 750, for example, should be able to accelerate from its stock speed of 2.66Ghz to speeds as high as 3.2Ghz. This is a substantial improvement, and it allows new Core i5 processors to perform as well as current Core i7 processors in applications that only use one or two cores. For more in-depth information, read a full review of the Core i5's performance.

The original Core i7 products, and their associated X58 chipset, make use of triple-channel DDR3 memory. This meant that it was best to purchase RAM sticks in multiples of three. This is a turn off to many users because it makes RAM less flexible and requires more spending upfront. Gamers may enjoy spending the money to see the i7 really perform.
Core i5, however, uses traditional dual-channel memory. This should make RAM less expensive for most users. Some new Core i7s will also support dual-channel memory instead of triple-channel. The performance difference should be insignificant for most users.

Another significant performance difference is how the Core i7 and Core i5 products will be handling hyper-threading. Hyper-threading is a technology used by Intel to simulate more cores than actually exist on the processor. While Core i7 products have all been quad-cores, they appear in Windows as having eight cores. This further improves performance when using programs that make good use of multi-threading.
Some Core i5 products have this feature, but some do not. Currently, the Core i5 750 does not have hyper-threading, but it does have four physical cores. The dual-core Core i5 products, on the other hand, do have hyper-threading.
In either case, the end result is that no Core i5 products has or will have more than four physical or simulated cores. This means that Core i5 products will not be as quick under heavily multi-threaded work loads as Core i7 products.

Overall, the new Core i5 processors are far more evolutionary than revolutionary. While these new processors are actually quite a bit different from the Core i7 processors currently available, many features, such as the enhanced turbo boost and dual-channel memory, are shared with new Core i7 processors. The difference between Core i5 and Core i7, then, will be somewhat dependent on which particular Core i7 one is comparing Core i5 to.
Even so, Core i5 is clearly meant to be a more mainstream processor. Those who use their computers for heavily multi-thread applications will miss hyper-threading and the triple-channel memory, which means that a Core i7 on an LGA1366 socket will be best. For most us, however, Core i5 is more cost effective (it's available for around $200), and quite adequate for our needs.