It might be interesting to add that the prefix "con" gives a clue to the most important difference between these terms.  A word accumulates its connotive meaning from past uses in past contexts--take, for example, the words "prejudice" and "discrimination".  Once perfectly legitimate terms to some steps in the logical progress, their use in social contexts has rendered them tainted for non-social use--if I said I was prejudiced against Indian food, for example, I would not be communicating well.  Some words get a connotation from a "frozen idiom".  We used to be able to call a female dog a bitch, but because of the frozen idiom "son of a bitch" (meaning "he's a dog" or "less than a human") the word has taken on connotations that prohibit its use in other contexts.

In literature, denotation refers to the literal meaning of a word. Connotation, on the other hand, is more complex. It refers to the deeper meaning that a word carries beyond its literal meaning. These meanings and associations are culturally determined. For example, a "chicken" is obviously a barnyard fowl. But if one describes a person as a "chicken" they are using a word that carries connotations of cowardice. To use a slightly more subtle example, in referring to the human body, "thin" and "skinny" denote essentially the same thing. They refer to a slender person. But "skinny" carries an unhealthy, or at least an unattractive connotation, whereas "thin" is more positive.