The difference between augmented reality and virtual reality is the difference between information retrieval vs. immersion experience.
Augmented reality and virtual reality are on the tipping point of becoming commercially successful technologies. Can't you just feel it? The concepts have been around for the entire history of computing (Ivan Sutherland invented the first head mounted display in 1968). However, the technology to make them commercially viable is only now coming into existence. Devices such as Oculus VR, HoloLens, Google Cardboard (sort of), CastAR, etc., all have a chance of being the first commercially successful AR/VR device. Each product is unique in some way: different strengths, different weaknesses, different nuances. But for now, let's abstract away individual products and think about the core concepts of augmented and virtual reality.
Augmented Reality (AR) is a view of the physical world with additional information. Examples include a screen that could show a camera feed with digitally generated content, or a head-mounted display that adds information on top of your view of the world.
Virtual Reality (VR), on the other hand, is an immersive experience. The user's view is completely different than what is in their real world environment. It usually involves a screen that takes over your whole field of vision, showing something completely unrelated to the world around you.
To most people, AR and VR seem fairly similar. Most people confuse the two terms, even technology publications sometimes use the terms interchangeably. However, the subtle distinction of whether the device augments information on top of your view, or presents you with an entirely separate view, makes a world of difference.
AR’s future will be about adding information to your world. It will be the main way we gather and access information. Looking up data about an object in front of you, retrieving a previous message, checking what’s on your calendar, getting directions, and an infinite number of other examples could all be helped with AR. The list goes on.
So why is this so much better than what we have now? Information won't be limited by size. It won't be confined to a 15" computer monitor, or a 4" phone screen. But more importantly, the need for UI navigation goes away completely. It’s the ultimate human interface: just say your command, and the information will appear in front of you. No worrying about menus. No apps. Nothing except your command and the computer’s result. All the work to get to the answer goes away. (Active) voice input (and passive video input) and visual output is a near-term future that would greatly improve the experience of many information-based tasks that we currently use smartphones and PCs to accomplish.
While AR's future will be about information retrieval, VR's future will be about experience. Virtual reality allows users to explore a world completely unrelated to the view in front of them. Instantaneous travel to any place imaginable. Simulated time travel. VR will enable new ways of learning through immersion, understanding other people's perspective, and gaming. Lots and lots of gaming. That part has already begun. Almost every use of the popular VR headsets are for gaming. You can actually step into the game. While gaming on a TV can take up a few percentages of your field of view, VR gaming takes up 100% of your view no matter where you look. Playing games in VR feels so much more real.
At MakeMIT 2015, my team demoed a concept for a great productivity use of VR. Check back soon for an explanation of our MakeMIT VR concept. There will be some use cases for productivity in VR, but I imagine most use cases to be watching VR-movies and playing games. Consuming media in VR will be huge. (Right now, there's an argument that while VR is personal, that also makes it isolating. You won't be able to consume that media with other people. But it seems fairly obvious that multiple user VR systems could be created.)
AR and VR will both have a strong presence in the future of technology. However, their paths will diverge more and more as AR becomes the best way to access information and VR becomes the best way to experience media and games.