Site definition
A Site definition is a collection of Files such as ONET.XML which defines the Site template for e.g. Team Sites used to create a Site in SharePoit. All the out-of-box site Templates like Blog,Wiki,Team Site etc can be found in C:\Program Files\Common Files\Microsoft Shared\web server extensions\12\TEMPLATE\
Site Template
Any Site along with the content can be saved as a template. If a site is saved as a Template it is stored in Site templates folder as a .stp file. This template is then re-used to create a new site which will have the pre-saved settings.
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