This message is for the Pharisees, whom Jesus is rebuking for their self-righteousness. The Pharisees were very confused about their spiritual condition, so Jesus was trying yet again to show them their wickedness and need for a Savior. There is no conflict between this passage and salvation by grace.
The Context of Scripture
This might go without saying, but the spiritual truth that God is trying to communicate through scripture is a lot "bigger" and is very "different" than the way we generally think of things. (Isaiah 55:8-9) Throughout the Bible, I get the sense that God is continually trying to "explain it a different way..." or "in other words..." or "approach it from a different angle", in hopes that once we have seen truth from all of these different angles, we might finally have a clear picture of what reality actually looks like from God's perspective. (e.g. Hebrews 1-2)
For this reason, I think it is important to seek "God's meaning" by careful study of all of the relevant passages, rather than focusing too much on the details of word definitions, etc. (Matthew 4:1-8)
Jesus is clearly trying to make a point by drawing a contrast between "good trees" and "bad trees". He is talking to a very confused group of people (the Pharisees) who think that being "religious" is the same as being "good". Jesus, once again, is trying to explain that they are not "good". This time he is pointing out the wicked things that are coming out of their mouths, and indicating that they will be judged for every last one of them. (Consider the context of the passage - blaspheming the Spirit.)
Is Jesus teaching "salvation by words"? Not really. (Mark 7:6-7, James 2:14-17) If He was, we would all go to Hell. (James 3:2, 2:10) We should understand this passage in the same way that we understand the law... it is the perfect standard of God, which we should all live up to, but which no man actually does live up to, and which we will all be judged by... (James 2:10-11, Matthew 5:48) ...unless we return to Him and are cleansed from our sin by His gracious gift of salvation via the sinless sacrifice of Christ. (Romans 3:19, Galatians 5:18)
I may be wrong in this, but to me it looks like "judgment day" is reserved for the wicked, and the "righteous ones" aren't there for that event... (Revelation 20:4-6, 11-15, 2 Peter 3:7, John 3:18)