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Just to elaborate a little on the previous answer, literary theory is what is sometimes used when one is analyzing a work of literature (criticism). To rephrase, you apply a literary theory to a work of literature in order to analyze it (perform criticism). Literary theories abound: Feminist, Formalist, Historical, Economic/Marxist, Reader-Response, etc.
To give you one example, if you apply Feminist theory to a literary work, you analyze the work in terms of the roles women play, the value the women have (are they valuable in their own right, or only valuable because of the men in their lives?), the attitude toward women, what the work reveals about attitudes toward women in the society the work springs from, etc.
At the same time, anytime you do a "close reading" of a work, you are using literary theory to perform criticism.
Just to elaborate a little more on these posts: Literary theory is often used in an attempt to frame the literary work in a certain context: as it was said - in a Feminist, Psychoanalytical, Marxist, Post-colonial context, and so on. This is not to narrow its meaning, but to tease out any meanings which would otherwise be hidden with a more traditional analysis. Some people make no distinction between literary theory and literary criticism: but like the last poster said, it is often thought that literary theory is the abstract work and criticism is the practical application of that work.
The earliest theorists whom I learned about were Plato and Aristotle. In a lot of theory classes, we usually jump ahead to Dante, then the Neoclassical, Metaphysical and Romantic/Transcendentalists. Then the 19th and 20th with Formalist, New Criticism and some of the more recent theories like the ones mentioned above. This is a Western-centric summary: there are theorists from the East as well. (i.e. Al-Jahiz, Ibn-Rushd (Averroes), Confucious, Basho, Abhinavagupta) - to mention a few of the more ancient Eastern theorists. Homi Bhabha and Gayatri Spivak are the most talked about modern eastern theorists that I know of.
Following is an attempt to give you the least possible satisfactory answer.
1) Literary theory is the arena of literature where some established theories set by different theorists are used as yardsticks to criticise different literary pieces. These set principles we study in order to judge any prose or poetry. That's what actually the relationship between The term 'theory' & 'criticism'.
2) The earlier theorists are many from different ages, and some of them are: Sir Philip Sidney ("An Apology for Poetry"), John Dryden ("An Essay of Dramatic Poesy", Fables), Alexander Pope ("An Essay on Criticism"), P.B Shelley (A Defence of Poetry"), William Wordsworth (Preface to Lyrical Ballads), Matthew Arnold ("The Study of Poetry") and of course T.S. Eliot ("Tradition and the Individual Talent", "The Metaphysical Poets").
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