Search engine marketing (SEM), refers mainly to the text advertisements which appear at the top or on the right hand side of search engine results pages. These promotion links are purchased generally from Google and Yahoo. They then in turn publish these ads on their secondary ad network as well.
Search engine optimization (SEO), refers to civilizing a web sites natural ranking in the search engine results page. This more inexpensive method is often slow and new web sites may take up to a year to get civilized rankings in Google.