Basic differance:
Incrimental encoder:
outputs a pulse stream as it rotates. Basically just an on off on off on off, etc. Good for determining speed and distance.
Absolute encoder:
outputs a binary number called greycode. for example, an 8 bit absolute encoder will have 8 outputs each corrisponding to a bit in an 8 bit binary number. i.e. 10010110. This number corrisponds to a specific point in the rotation. Useful if you want to keep track of the position of a rotating object.