The IMF summed up the situation in Spain perfectly in one line: "The past four years have witnessed a crisis in the Spanish financial sector unprecedented in its modern history." Yup, Spain is in a tough spot.
Absent any financial assistance, and the economic problems there will easily eclipse Greece. The problem with this is that Spain is a much larger economy, reportedly ranking 13th in the world by the IMF. Greece? 42nd. (Source: Wikipedia) This means that, while it would be bad enough if Greece defaulted and left the euro, the impact on the European and global economies of Spain of defaulting on its debt and leaving the euro would be practically catastrophic.
Spain has been hit by some of the same factors that slapped the financial systems in other countries, including plummeting real estate prices. To recapitalize its banks, the IMF says that Spain needs about $46 billion. Not a lot of money. Think about the numbers for Greece, and that's a smaller economy.
Where to get the money? Clearly, the international financial markets aren't working out so well. The credit agencies have been cutting their rating on Spanish debt, and foreign investors have been leaving the country; according to Bloomberg.com, foreign investors held about 50% of Spanish debt at the end of last year, and only 37% in April.
In the event that Spain does the smart thing, and begs for funds, then it will likely get the lifeline that it needs. That is the likely scenario. Take the loan. Just kick the can down the road and let someone else deal with the problem in the future. "Debt is okay, let the next generation pay for it, just as long as I don't see any further deterioration in my standard of living now."
In the event that Spain completely screws this up, goes against current market expectations, and tries to take chances on its own, it would likely be the final straw in watching the euro zone collapse. Spain's unemployment rate, already holding around 25%, would likely skyrocket, as the economy implodes. Expect to see civil unrest and significant political change.
Either way - now or later (and actually probably both) - the people of Spain are in a tough spot.