Marketing is defined by the American Marketing Association as the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large. The term developed from the original meaning which referred literally to going to market, as in shopping, or going to a market to sell goods or services.Okay... that still sounds about the same, right? First, advertising is a subset of marketing. Therefore all advertising is marketing, but not all marketing is advertising. Second, the distinction lies in the intent. Marketing is about disseminating information; advertising is about persuasion.
Advertising is a form of communication that typically attempts to persuade potential customers to purchase or to consume more of a particular brand of product or service.
Still not clear? Suppose you're at a farmer's market and you want tomatoes. You see someone with tomatoes displayed, and you go buy them. He doesn't have to tell you to buy them or announce their availability, him simply presenting them is all the marketing you need. It would be advertising if he were yelling out loud "Get your fresh tomatoes here!" since he is trying to influence you to purchase his tomatoes. The announcement would be marketing, the persuasion (via the command "get") is advertising.
So, circling back to where I started, what led me to finally grasp the distinction between advertising and marketing was a blog post by Seth Godin titled "which comes first, the product or the marketing". In it he points out that most of the time you actually need the marketing first since that will drive product creation. Once I read that I recalled a Facebook status update by Matt White and a blog post by Ben Langhinrichs illustrating how this has started happening. IdeaJam is marketing because a community is exchanging information in an attempt to achieve something of value to them. Some entrepreneurial types are taking this and capitalizing on it by delivering products to meet the market demand.