Question

What is the difference between the two and when one should be used instead of the other?

Answer 1

An Engine in rails terminology is a actually a subapplication of a web-application. For instance, something like a blog, a forum, or simple authentication: these are not full-blown applications, but pages/views/controllers/models that can be added to any rails application.

In rails2 this would be done using a plugin. Now since rails3 an engine can be packaged in a gem.

A gem is a ruby library, which can be found on http://rubygems.org and it is the standard (only) way to package and distribute ruby code to other rubyists.

So to conclude:

• A gem: is a generic library, which can be easily installed, which are version-managed, have dependencies and such.
• An engine: is a sub-application of a Rails application, and since Rails 3 these are distributed as a gem (which is awesome!).

So when will you use one or the other:

• create a gem if you want to share ruby-functionality
• create an engine (and package it in a gem) if you have parts of your rails application that can be used more generally.

Hope this helps.