A configurable product looks like a single product with drop-down lists of options for each variation. Each option is actually a separate simple product with a unique SKU, which makes it possible to track inventory for each product variation. To achieve a similar effect, a simple product can be used with custom options, but without the ability to track inventory for each variation. Products with multiple options are sometimes referred to as composite product.
Although a configurable product uses more SKUs, and may initially take a little longer to set up, it can save you time in the long run. If you plan to grow your business, the configurable product type might be a better choice for a product with multiple options.
Example: T-shirts that can be bought with two colors and three sizes. Six variants need to be created as individual products (each with its own SKU). Then, all variants are added to a configurable product where customers can choose the size and color, and then add it to their cart.