To answer the whys, profiling memory usage is especially important for iOS apps because iPhones and iPads have much less RAM than Macs. The iPhone 4 has 512 MB of RAM, but earlier versions had 256 or 128 MB. Factor in the RAM the OS uses and multitasking, and your app doesn't have much RAM to waste so it's important to be aware of how much memory your app uses.
Profiling performance is something you usually do when your app is running slowly. Profile it to find the slow spots in your code so you can make the code run faster. If your app runs fine, you don't have much need to profile for performance.
To answer the hows, use the Allocations instrument to measure memory usage. The Live Bytes column in the All Allocations category tells you the amount of memory your app is currently using. The Allocations instrument's heapshot analysis measures memory growth in your app. Use the menu on the left side of the jump bar to do heapshot analysis.
The Time Profiler instrument profiles your app for performance. The difficult part of using the Time Profiler instrument is interpreting the results. The Time Profiler instrument isn't going to tell you your app spends 75% of its time in Function X. You have to dig through the data to find the slow spots in your code.
Regarding acceptable memory usage, it depends on the devices you want to support and the app. An app like Xcode using 100 MB of RAM would be OK, but an app like TextEdit using 100 MB for a one page document would be a problem. 5 MB shouldn't be a problem for an iOS app.
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