Here's a brief statement of Communism and Capitalism in a way that makes their differences most clear:
Communism is the theory that people should work according to their ability and receive rewards for that work according to their need.
Capitalism is the theory that people should work as much as they desire and receive rewards based on the value of their work.
Communism requires the government to structure the work and the reward. It suffers from a number of problems. One is that the government cannot efficiently decide how to structure an economy because a national economy is too large, hence communist economies tend to be less efficient and less profitable. Another problem is that the people aren't as motivated to work because their benefits are not tied to their efforts, hence their work is less efficient. A third problem comes from the fact that communism desires everyone to be employed, so it doesn't innovate, because with innovation comes temporary job losses, hence communist nations fall behind. Finally, and this is the biggest problem, in order to effectively manage the system, a communist country must be a dictatorship. As the saying goes, power corrupts, absolute power corrupts absolutely. Communist nations are very corrupt.
Capitalism isn't perfect either, otherwise there wouldn't be any communists. In the free market, the people who have the most money can protect their money better from losses and invest better during good times, so they tend to make more and more money. The poor have to spend all their money just to get by, so they can't save it or invest it and continue to struggle. There is the possibility for advancement in capitalism with any individual, but by and large, a capitalist system tends to conglomerate wealth, leading to a few powerful people controlling the nation.
The US used to be basically a pure capitalist nation. It lead to the very problems I described above. After the stock market crashed in 1929, we elected Franklin Roosevelt who restructured our economic system with a plan called the New Deal. Under the new deal, we abandoned pure capitalism (called Lassez Faire Capitalism) in favor of regulated capitalism, which is more moderate. In this system, there are some methods for transferring wealth from the rich to the poor and methods of protecting the middle class. Some of these methods were already in place, like the Antitrust laws, started by Franklin's distant cousin Teddy Roosevelt decades earlier, but others, like welfare, social security, market regulators, various federal agencies, and others were part of the New Deal package. To varying degrees, we have been a regulated capitalist nation ever since.
There is also a more moderate version of communism, which is a socialist democracy. In that system, there is a democratically elected government, not a dictatorship. There is a lot of private industry too, like capitalism. The difference is that certain sectors of the economy, like utilities, are controlled by the government. Socialism tries to have the government run those industries that it deems capitalism doesn't run well. There is, of course, great disagreement on which industries those are. This type of government is very popular in Europe.
These systems are best understood as a continuum, rather than distinct separate ideals. They are often described from left to right:
Communism, Socialist Democracy, Regulated Capitalism, Lassez Faire Capitalism, Fascism
Fascism is a right wing dictatorship. It is when a single individual conglomerates all the power and takes over control of the entire nation. At the extremes, there's not much difference between a communist dictatorship and a fascist dictatorship. Most developed countries are in the middle. The US is a little bit to the right of center. Most of Europe is a little bit to the left of center.
Answered By: Joe Finkle - 2/18/2009