Or perhaps, this can be rephrased as the Difference between noise reducing and noise canceling.

A lot of people would be very confused as to the distinction between noise isolation, noise cancelling and noise reduction and how to distinguish between them.
First before we move on to how they are different, let us look at where they share similarities.
All three are essentially similar in the fact that they are meant to improve your hearing experience by removing ambient noise away from your ears.
That is, if you had construction works going on right outside your house, you would not have to hear them, and not have it impede and intrude on your hearing experience.
Of course the ability of your headset or earphone to counter this excess and unwanted sound would vary, even if they were of the same type of noise removal technology.

In fact even for the same type they can have very many different names for their categories.
They can be called sound isolating, or sound cancelling, using sound instead of noise.
Sometimes, noise canceling is even called active noise reduction.
In either categories, a good pair will allow you to be oblivious to the kid crying on the bus or train or on the plane.
In essence, you are allowed finally to listen to only that which you like, and not hear any of the extra screams or dissonant voices.
No more noises of plane engines, or train tracks or sounds.
The different technologies would work differently on different items however.

Sometimes, the fact that they work quite differently can and probably does transfers to different prices.
Let us first go to how this technologies for sound removal works.

Noise isolating are usually found in in ear earphones, or in ear monitors which are also known as IEMs.
Their "technology" is to act like earplugs, so as to prevent noises and sound from going into the ear normally.
This "earplug effect" can be done by using foam pieces, or plastic sleeves or rubber molds, basically anything that is used for making earplugs can be similarly appropriated for these purposes. They are then molded into a form that can be folded into the ear, fitting snuggly into it and blocking all external noises. One important thing about this form of technology is that it is as is, just like earplugs are, and will not at all require batteries or a power source, in case you were wondering about that. No circuits, no batteries required.

Noise cancelling on the other hand, are usually headphones, with a few exceptions. For one, Sony ericsson runs a line of rather expensive noise canceling earphones that requires additional batteries. What noise canceling equipment does, is to use sensitive electronics to take a sound sample within the earphone or headphone ear cups, and then digitalize it, following which they virtually create an identical but inverse noise signal that is a mirror image of the incoming noise, and feeds it back out into the sound output, canceling the actual noise with the mirror, which accounts for the name of noise canceling. Naturally, such circuitry is as a result requiring more power, and actually requires a power source, usually in the form of batteries to operate.

The common suppliers of these are Shure or Sennheiser or Sony, with certain other well known and trusted brands specialising in one of these two categories. For example westone earphones deal with IEMs only, which would use noise reduction.

Due to the different technologies, there are also different goals that would correspond with which equipment you should choose to use.

Finding a proper ear fit for noise isolating and noise reducing earphones can take a while, since every one has ears which are differently shaped. Even with universal fits, as well with brands that comes with an array of interchangeable tips to prevent discomfort, might just not have the right one for you. If it is too big, or too small, or just the wrong shape, its not right for you. Thankfully, for the low end earphones, they are cheap enough that you could go around looking for a good set of buds at an affordable price before making a more serious purchase.

An easy scenario is in the case of a person who is either going for, working at, playing at or is just at or near a concert. For one, you would notice that anything with batteries, as well as headphones would be much much heavier than a noise reducing pair of earphones. Furthermore, the in ears will be safer for use in noisy environments. The underlying rationale between this is that most of the ambient noise that you hear when you are about to use this equipment will be blocked out by the IEM, as it is in effect a pair of 25db earplugs, it protect your ears by dampening the sound energies that will be going into your ears that would normally do damage to it. A canal phone, or the in ear phones or IEM here would also allow you to listen to sounds at a lower volume, and you would then not need to turn it up to compete with external backgrounds. Active canceling headphones or earphones which uses destructive wave interference so as to attenuate sounds would reach the best isolation levels of 30-40 db, but it does not isolate low and high frequency sounds very well, and would then be best enjoyed in the comfort of your own home.

In the end, a good pair of audio equipment will mean the difference between serenity in listening to your ipod, or having to deal with the drilling sounds in the house next door. These days both earphones and headphones cost about the same at the high end level. However, for most headphones, once the battery dies, your music dies too. Sound isolating earphones like the westone um1 are great for portable players, noise canceling headphones are great for personal enjoyment in the comfort of your home.