A commercial (or "traditional") publisher purchases the right to publish and pays the author a royalty on sales (most also pay an advance on royalties). Commercial publishers are highly selective, publishing only a tiny percentage of manuscripts submitted to them, and handle every aspect of editing, publication, distribution and marketing. There are no costs to the author.
A vanity publisher (a.k.a. book producer or book manufacturer) prints and binds a book at the author's sole expense. Costs include the publisher's profit and overhead, so vanity publishing is usually a good deal more expensive than self-publishing. The completed books are the property of the author, and the author retains all proceeds from sales. Vanity publishers don't screen for quality—they publish anyone who can pay—and provide no editing, marketing, warehousing or promotional services.
A subsidy publisher also takes payment from the author to print and bind a book but claims to contribute a portion of the cost, as well as adjunct services such as editing, distribution, warehousing and some degree of marketing. Theoretically, subsidy publishers are selective. The completed books are the property of the publisher and remain in the publisher's possession until sold. Income to the writer comes in the form of a royalty.
Self-publishing, like vanity publishing, requires the author to undertake the entire cost of publication herself and to handle all marketing, distribution, storage, etc. However, because the author can put every aspect of the process out to bid, rather than accepting a preset package of services, self-publishing can be more cost-effective than vanity or subsidy publishing and can result in a much higher-quality product. And unlike subsidy publishing, the completed books are the writer's property, and the writer keeps 100 percent of sales proceeds.
Print-on-demand (POD) publishers don't screen submissions (except perhaps to exclude pornography or hate literature), so anyone who's willing to pay will be published. They don't routinely provide editing, proofreading or book marketing (though some offer these as add-ons to the basic publishing package—at an additional cost). Income to the author comes in the form of a royalty on sales. The author loses some control with fee-based PODs, as options are limited to specific packages offered by the publisher. Also, rights may go to the POD service, which has an exclusive claim on them for a set period of time.
—Used With Permission From Writer Beware (www.Writerbeware.Org).