Is this just version difference or up-gradation to library? Which one recommended to be used?
I am Lowagie, the lowagie you refer to. I'm the original author of iText and the author of the "iText in Action" books and my advice is that you should use the latest version of iText.
The differences between old versions of iText (iText 2.x.y dates from July 2009 or earlier) and newer versions of iText can be found in the release notes.
The 5.0.0 version had the following substantial changes:
iText and iTextSharp started using the same version numbers
the iText.jar is compiled using Java 5 (instead of with the JDK 1.4).
The F/OSS license has been upgraded from MPL/LGPL to AGPL.
The package names have changed from
The toolbox and RTF support have been removed: they are now in a separate project at SourceForge.
Numerous bugs have been fixed since July 2009. Functionality that makes your PDFs future-proof such as updates regarding new digital signature standards and new standards such as PDF/UA, PDF/A-2 and PDF/A-3 is only available in the more recent iText versions.