Each top-level conversation contains groups of messages that are sort of like subthreads. The conversations are referred to as "waves" and the subthreads are called "wavelets". Individual messages, which are called "blips", are the smallest discrete conversational unit of a wave. The distinction between Wave the service and "wave" the conversational unit is significant, so keep an eye on the capitalization.
Why the jargon? These terms do not relate to anything anyone is familiar with in any different context. This seems unnecessary.
I genuinely hope that http://xkcd.com/483/ (Fiction Rule of Thumb) doesn't apply to Google Wave.