Budgies puff up their feathers when they're sleeping, BUT sleeping on two legs is always a bad sign!
Budgies regulate their body temperature with their feathers. If they're cold, they will puff up their feathers; that way, they create an insulating layer of air that holds some wamth. Budgies are not supposed to be "puffed up" all the time, though, unless they are sleeping - but it could also mean that they're ill.
When they're too warm, they spread their wings a little to get cooled down.
Other posts in this series:
Body Language of a sleeping budgie
Body Language of a preening budgie (Budgie Body Language 1)
Budgie Body Language (3)
Budgie Body Language (4)