As a graduate student looking for jobs, a common question I heard was "Industry or research?" Industry jobs include developers, technical managers, and even applied researchers to a large degree. Fundamental research jobs are professors and research scientists at industrial labs, such as Microsoft Research and Yahoo! Research. The definitions are somewhat fuzzy (applied research is industry? industrial labs are research?), but a generally distinguishing characteristic is whether publishing papers is a primary aspect of the job.
It was this characteristic that made me realize the fundamental difference between industry and research. It's one I wish I had known when I started graduate school. In short,
Industry is primarily about selling products, while research is primarily about selling stories
This is why publishing papers is telling: papers are a medium for selling stories. Of course, a good story helps sell a product, and a working product helps sell a story. So there is definite overlap. However, it's telling how well the pros and cons of industry and research derive from this basic difference.
To illustrate, consider some classic pros and cons. In industry, since you sell products, your work has direct impact on people that use the product. Since people will typically pay for this impact, the product itself is the source of funding. And if your product is sufficiently impactful, it is the source of a lot of funding, and you get rich. However, this means it's critical to quickly and consistently create marketable products. The result is a dampening effect on the problems targeted by industry: they are dictated by the market, and typically have shorter-term visions with fewer (or at least more calculated) risks.
In contrast, research has significantly more freedom in the problems it tackles. They are often longer-term, riskier visions. Research can do this because it only has to sell stories describing core ideas, not fully working products. Thus, it can focus on interesting technical problems. However, "selling" a story does not usually mean for money, but rather convincing people that it describes a good idea (e.g., getting a paper accepted to a conference). Since neither the story nor the idea generates money directly, researchers must seek out external funding such as grants, or, in industrial labs, income from products (which, to be fair, often contain the final fruits of research).
Given such pros and cons, the distinction of product vs. story seems obvious in hindsight. However, what made me first realize it was a more subtle situation. My advisor asked me to devise a data model for the system we're building. I came back with two options: a very common model, and a novel model that was simpler and more expressive. I favored the novel model, but my advisor said we should use the common one. His reason was that the data model was not our primary contribution, and papers with too many innovations can confuse readers. And he was right. Even though the novel model would make for a better system, the common model makes for a better story — and I'm currently in the business of selling stories. At some later date, after we sell our current story, we may sell another story that focuses on a new data model.
To conclude, I want to say that this isn't meant to promote either industry or research. In my particular case, I've found that I lean more towards selling products than stories. However, I've spoken with both developers and researchers, and both agree with the product vs. story differentiation, and each prefers their side. Of course, I'd love to hear from anyone else on the topic. I just think that understanding this difference is vital to making an informed decision about graduate school, and life afterwards.