iPad has a larger screen, which means it’s better for things like reading books, watching movies, or surfing the web.
itouch is much smaller (about ¼ of iPad’s size) meaning it’s much more portable, suitable for playing audio books or songs and playing simple games and video recording. It can also serve as a personal organizer/agenda device, mainly due to its portability.
Note that the iPad has a lot of other features like a superior processor and gfx card, meaning that alot of games will work on iPad but not on itouch. You should also expect better performance in viewing books and web browsing on the iPad.