We are to discern what is true and what is false by the Word of God. Today, people despise absolutes. They think of the firm standing of Christians as simplistic and non-intellectual. Doctrine is out. Compromise is in.
Righteous standards are out.
Jesus does mean that we are not to be critical. We are not to condemn, censor or label people by what we see on the outside. We are not to pass a sentence on others because of what we've heard them say or seen them do or read about them. In other words, we are not to categorize people, their character or their worth by what we see. James suggests what many of us would do.