Phonetics: In order to produce sound humans use various body parts including the lips, tongue, teeth, pharynx, and lungs. Phonetics is the term for the description and classification of speech sounds, particularly how sounds are produced, transmitted and received. A phoneme is the smallest unit in the sound system of a language; for example, the t sound in the word top.
Various phonetic alphabets have been developed to represent the speech sounds in writing through the use of symbols. Some of these symbols are identical to the Roman letters used in many language alphabets; for example p and b. Other symbols are based on the Greek alphabet, such as θ to represent the th- sound in thin and thought. Still, others have been specially invented; e.g. ð for the th- sound in the and then. The most widely used phonetic script is the International Phonetic Alphabet. There is an excellent article on this in Wikipedia.
Phonology: Phonology is the term used for the study of the speech sounds used in a particular language. The distinctive accents that many learners of English have are due to differences between the phonological system of their language and that of English. From birth, and possibly before, we learn to recognize and produce the distinctive sounds of our own language. We do not need to give any thought to how to have the lips, tongue, teeth, etc. working together to produce the desired sounds. The physical structures of parts of the sound system are adapted to produce native-language sounds.
English has some speech sounds (phonemes) that do not exist in other languages. It is no surprise, therefore, that native speakers of those languages have difficulties producing or even perceiving such sounds. This is particularly true for speakers from language families other than the Germanic one to which English belongs.
Note: It is assumed that most visitors to these pages will not know the phonetic script. Consequently, phonological difficulties will be made clear by reference to common English words or syllables, and not by the use of phonetic symbols.
Source:
http://esl.fis.edu/grammar/langdiff/phono.htm
