digital: you buy a license to play a game. you dont buy the game.
its cheaper, there are lots of sales.
after you purchase you can download the game as many times you want
usually you just have to download the game, no installs prompt required no need to write the serial that comes with the game (you dont go through a install prompt. steam does all the work for you)
you have the game on the account, you login on a computer let it download and play.. is really easy...
you can backup the game files\record a dvd (or several) with the game, so if you want to reinstall the game and have poor internet, you can use the backup and internet will be only used to verify..
if the game breaks you don't need to reinstall the game, you can just verify if the game is correctly installed
you are forced to have the client installed on your computer, and to play the game the client must be running on your machine (and the client consumes a piece of resources, if your computer is old, this will make your computer "busy")
however. you are under steam DRM...
if you lose the account you lose the game and all your purchases
you can't sell your used copy or give it to other people in case you ditn' liked
you have to keep internet connection, you can go into offline mode, but if there is a tiny change on your computer (like a hardware upgrade or you change the time on the clock) you will be blocked from playing your games unless you verify the account (you just have to login and check if the steam client is upgraded)
if you are banned from steam (only if you do something serious and bad), all your purcahses are gone
if a game is VAC protected and you try to cheat (or a virus messes up your computer) you get VAC banned, and every game on your account gets limited on which servers you can play
if valve decides they want out of businnes and close the steam service, all your games are gone (unless they find a solution)
i make a special note to "if valve closes the service" because nintendo pretty much closes old services like wii and dsi shops (and happened to my symbian phone from nokia) if they decide to close the service for whatever reason, you are pretty much screwed up... i bought apps onmy nokia, i couldn't make backups of the install files, they closed the shop and i can't reset the phone without loosing all my apps and never get them again unless i find a third party website that provides them illegally...
as for physycal:
you own the game. unless the game is using a stupid drm that uses internet, you can install it where you want, as many times you want.
you can sell\trade the game whenever you want (but since multiplayer are under accounts\serials, the other person will not be able to use the multiplayer part because already registered serial)
you have the small hassle of get up from the chair, find the cd, put it on the computer then going through a install proccess..
if you damage the disc you are much screwed up, but you can usually buy a replacement, but still costy...
you get physycal goods like the game manual (which i really like to have)
you can't usually backup the disc (you have to use third party tools to make a copy that will work)
usually you have to have the disc inserted on the computer for start the game... (and the repeatly process of doing this can easily damage the disc)
some DRM are a totally garbage like gta IV you can only install the game on 5 (i remember if this number is correct)) computers.. and you have to do a license revoque thing. if your computer gets really broken, and you can't revoce the gta iv license from it, it will be a long term problem.. BUT if this type of drm is on the disc version, usually they are also in the steam version... making the steam version sometimes with 2 or more diferent kind of DRM...