iOS is the operating system for iPads, iPhones and iPod Touches, and version 5 was released in October last year. Whether your phone can update to iOS 5 depends upon which model that you have - older models don't support iOS 5, and for newer models (iPhone 3GS, 4, 4S, 5) you can only update to the current version (i.e. iOS 6.0.1) as that is the only version that is 'signed' by Apple
To see if you can update your phone, connect it to your computer's iTunes and copy any purchases off it to your computer via File > Transfer Purchases. You may also want to copy photos and any important documents off the phone as well e.g. via the file sharing section at the bottom of the device's apps tab when connected to iTunes, via wifi, email, dropbox etc - they should be included in the backup, but it's best to have a copy of them outside of the backup just in case. You can then force a backup of the phone by right-clicking the iPad 'Device' on the left-hand side of iTunes and selecting 'Backup'.
Then start the update by selecting the iPhone on the left-hand side of iTunes, and on the Summary tab on the right-hand side clicking the Check For Updates button
Updating to iOS 5+ : http://support.apple.com/kb/HT4972
If it's an iPhone 3GS, 4, 4S (or 5) then it will be updated to iOS 6.0.1, so you will lose the built-in YouTube app and the Maps app will change.