IPhone to iTouch can't text

i have an iPhone 4 and we just bought an iTouch for my daughter.  the advertisement material indicates we should be able to text or do facetime as long as there is a wifi connection.  I can't figure out how to do it. 
on the iTouch, when she tries to message, me she gets an error that i am not signed up for iMessage.  from the iPhone, i can't see anyway to identify her.  do i need another software to message her?  the software that came with her iTouch looks like the same messaging software i use.  i do know she was able to message her friend that has an iPhone.
What am i doing wrong?

With the iPhone, create a contact for the person with the iTouch.  There will not be a phone number to enter like you normally do, but enter in the Apple ID for the iTouch user under the e-mail section of the contact.
When you go to message from iPhone to iTouch, just type in the contact name and it should message the iTouch via Apple ID.

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