NSString allocation and initializing

What is the difference between:

NSString *string1 = @"This is string 1.";

and

NSString *string2 = [[NSString alloc]initWithString:@"This is string 2.];

Why am I not allocating and initializing the first string, yet it still works? I thought I was supposed to allocate NSString since it is an object?

In Cocoa Touch,

-(IBAction) clicked: (id)sender{
   NSString *titleOfButton = [sender titleForState:UIControlStateNormal];
   NSString *newLabelText = [[NSString alloc]initWithFormat:@"%@", titleOfButton];
   labelsText.text=newLabelText;
   [newLabelText release];
}

Why do I not allocate and initialize for the titleOfButton string? Does the method I call do that for me?

Also, I'm using XCode 4, but I dislike iOS 5, and such, so I do not use ARC if that matters. Please don't say I should, I am just here to find out why this is so. Thanks!