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The main difference is in the encryption. Sample case:
I would like to see a website in China which is blocked in my country. This site is not accessible from my country because the site owner only allows users located in China. For that, I have two options to change the location. Via Proxy or VPN.
PROXY
Proxies have no encryption. People who have access to my data stream (my internet provider or someone in the government) can steal the data I send.
VPN
Just like a proxy server, my ip address and location are changed to China and I can see websites in this country, but my data will be encrypted.
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CURATOR'S NOTE
This idea is useful to know about proxy and VPN
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