Site Definition
It is set of core definition files that resides on the server. A collection of ASPX and XML files are stored the WFE Server and they will be located under 14 hive structure of the system
Site definitions will have all the information about list and web parts etc.
It can be packaged as WSP and deployed elsewhere
Main components of site definitions : WebTemp.xml and Onet.xml
They can provision multiple webs
Site Template
Customize your site according to your requirements. Save it a template. Go to another site collection. Upload the site template. Create sites based on this template. A new site will be ready with same look as feel as template.
They are stored in the content databases. Easy to create
They can provision single web only
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