The main difference is how an IP packet is routed using a router or Layer 3 switch.
According to Cisco: the process of routing an IP packet can be divided into two distinct processes:

=> Control plane
=> Data plane

A traditional router uses the same general purpose CPU used to perform control plane operations to also implement data plane operations, meaning data plane operations are handled in software. A Layer 3 switch on the other hand uses an ASIC to perform data plane operations because it is very easy to program the very simple operations required for the data plane into an ASIC. In this respect, the data plane is implemented in hardware because a series of hardware operations are programmed into the ASIC that perform the data plane operations required for routing a packet.

If you don’t understand Control plane/ Data plane then I recommend studying following URL (above text is actually copied from same url):

http://www.ciscopress.com/articles/a...?p=102093&rl=1

Hope this helps.

PS:I think we need separate forum for networking discussion. Right now it is Linux only thingy. I hope vivek will add it sooner or later.