It's an interesting question because it presents so much in way of fundamental differences. The previous post was very strong in suggesting that there is a language paradigm difference with capitalism positing more in way of "individual" and "self- interest," while socialism frequently invokes terms such as "community" and "whole." This brings to light that one is more concerned with the notions of the individual, while the other is more driven by the overall needs of a social group. Along these lines, the definition of basic freedom is seen as different in both systems. Capitalism sees freedom as the pursuit of individual endeavors without a sense of intrusion from external ends, while socialism views freedom in a collective sense. This suggests that capitalism sees freedom as individual and isolating while socialism sees the group's liberation as bring of primary importance over the individual's. Government is primarily seen as a tool that needs to be limited in the capitalist framework, while socialism sees it is a need to ensure that the needs of all are met until it can be effectively dissolved as the community will end up policing itself in a collective entity.
There are a number of differences between these two. I would say the major difference is that capitalism is concerned more with people's invidual freedoms while socialism is more concerned with the needs of the community.
In capitalism, people are encouraged to think of themselves. They are encouraged to assert their rights and do what they want to do. People who believe in capitalism assert that this will lead to the best society for everyone -- individuals acting in their own self interest will make the best society possible.
In socialism, people are not encouraged to think of themselves. Instead, the government is supposed to limit what people can do pretty severely for the good of the community as a whole. In this view of things, the best society is brought about by a government that limits freedoms.
Capitalism and socialism are two alternative system that can be followed by a society or a country. In capitalism or capitalistic system all the means of production are owned and controlled by private individuals. These private firms decide what to produce, how much to produce, and what resources and technologies to be used. The firms pay for the input they use on the basis of prices decided by the market forces. Similarly the process they can charge for the goods they produce is also influenced substantially by the market mechanism. The firms take all the economic decisions including the process charged for the goods manufactured and supplied by them with the objective of maximizing their profits.
In socialism, or socialistic system, the means of production are owned and controlled by the people. IN practice this boils down to the means of production being controlled by the government. While increasing the total welfare of the people, remains an important objective of the socialistic system, another important objective becomes fair or equal distribution of the economic benefits among all the population. Thus the economic decision are not based on consideration of profit but on what is considered to be most desirable and feasible in the interest of the people. However, in practice the centralized the decision making in the socialist system becomes to complicated. This results in delays and wrong decisions. In addition people in-charge of managing the economy centrally may frequently deviate from the objective of public good to serve their own selfish interests.
In practice neither pure capitalist nor pure socialist system exist. Also neither of the system is free of faults. The system best suited for a country or society may differ from country to country. However in all cases the best system is likely to be a mix of the two.