What is the difference between Advertising and Publicity?

Publicity is mention in the media. This is a reason for the expression "publicity stunt" where someone will do something outrageous (hard to do anymore) to get his name/product out there. How the media cover the event is in their hands. "Public relations" folks try to get people like gossip columnists, etc. to write something positive about their clients (which can be companies or people).

Advertising is normally paid for and the client (advertiser) has control over the content. I would consider sponsorship of an event a form of advertising although it will also generate publicity.

Advertising costs money. Publicity is free.

one pays for advertising.

Very general distinction here...in some cases they're both the same. But as a general rule, advertising has to be paid for...while publicity does not.
A company will buy newspaper advertising (for example) to make the public aware that they're making and pushing a new soap.
But the same newspaper will carry (for free) a story about a local university sponsoring a series of public lectures by famous authors.

Publicity - targetted at media by and large
Advertising - targetted directly at consumers or businesses, generally oriented with marketing and sales

Let's start from the beginning...

Marketing is an umbrella - and underneath this umbrella are all the business activities necessary to take a product from you - the business owner - and get it into the hands of the customer. Advertising is one of those business activities. So, is publicity also known as PR or Public Relations. But let's look at a few more - they might include:

Product development
Market research
Strategic planning
Public Relations also known as Publicity
Advertising
Copywriting
Distributions
Your website - which can include a myriad of activities
Sale
Reseller or Distributor Programs
... and more.

Public relations - should actually be called media relations. It's all about getting you, your company or your products in the media. That means an author talking about their book on a radio talk show. A segment about a new software featured on a business show on CNN. A starlet getting an article about her in People or being on a late night talk show discussing her latest movie. And on and on. Fully 75% of what we read as "news" is actually generated through public relations as investigative journalism barely exists anymore.

Advertising - is paid space in the media. A space ad purchased in your local newspaper. A TV commercial. A banner bought and paid for on a highly-trafficked website.

Here's the difference: Public relations is meant to bring attention known as brand awareness to your product. There is no appeal to "buy now" in PR. It's merely information. And because you're looking to get media coverage - the bottom line is that you don't have total control over what's said. The reporter or editor does. The good thing about PR is that it's free.

Advertising in contrast - because you're paying for it - you have a lot more control and freedom as to what is said. Also with advertising you can ask for the sale - although not all advertisements do ask for the sale.

Hope this is helpful to you.

All the best,

Denise Michaels
Author, "Testosterone-free Marketing"
Get the book at: http://www.tfmbook.com
Visit me online at: http://www.mentoringwithdenise.com

Advertising costs money
Publicity doesn't

You can control Advertising.
You can't control Publicity