To put it simply, special effects are carried out on set during production, and visual effects are done in post-production. That isn’t to say that the visual effects team isn’t involved in production and the special effects team isn’t involved in post, but the creative decisions made by each team generally pertains to their respective phases in the film-making process.
Special effects can be broken down into two categories: optical, and mechanical. Optical effects are done by manipulating the camera and lighting which in turn will make your scene look different than what it looks like to the naked eye. This could involve working with camera lenses, types of lighting, or camera movements that give a certain look to the shot. The special effects supervisor is in charge of making the creative decisions and works directly with the director on set to achieve what he/she wants.
Mechanical effects involve working during a live-action shot and usually pertains to making things look/seem like something they aren’t. For example manipulating weather conditions like wind and snow is a huge part of mechanical effects. Pyrotechnics and working with scale models is another aspect of mechanical effects.
Visual effects has emerged as a paramount part of modern-day film making. You will rarely ever see a film without visual effects. This could be filling in a green screen, creating computer generated imagery (CGI), 3D rendering or animation. The visual effects supervisor (not to be confused with the visual effects producer or coordinator) makes all the creative decisions and works directly with the director off and on set to make sure he/she gets the visual image desired. The visual effects coordinator works for the visual effects supervisor in post-production, and the visual effects producer works like a line producer and manages the cost of the visual effects which can get outrageously high (sometimes over half of a film’s budget).
Here’s an excellent short on true in-camera special effects…