When I want to create a android virtual machine on my computer there is two options to select a target device. Both of them are for same API level. So which one should I select? What is the differences between them?

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One is basic Android, whereas the other comes with the additional Google APIs. These include things such as the Google Maps, C2DM, and USB Open Accessory libraries.
All approved Android devices (i.e those with the Google Market place) will support these APIs. Those cheaper Android devices that haven’t gone though the Android certification process won’t have the APIs.
I would code agaisnt the non-Google APIs unless you need any of the features.