Sfarad is the Hebrew word for Spain. So, in the strictest sense of the word the Sefardim (Hebrew plural of Sefardi) are the Jews who originated from the Iberian Peninsula. Today however the word Sefardim has taken a much wider meaning. It includes Jews in Northern Africa, the Near (Middle) East, Italy, Greece, Turkey and all Jews who are not Ashkenazi. Ashkenazim (Hebrew plural of Ashkenazi) encompasses all those Jews originating in Germany / Poland and the Russian Pale. Ashkenazi is a word arising from the Hebrew word meaning "German" as already said Ashkenazi has taken on a broader definition that includes not only German Jews but those of Eastern Europe and Russia as well.
Nowadays the difference between Sefardim and Ashkenazim is one of differing liturgical and cultural traditions due to their backgrounds. Mother languages spoken (Ladino and Arabic (for Sefardim) vs. Yiddish and Polish (for Ashkenazim), religious melodies during the services, festival traditions, the different pronunciations in Hebrew are among the major things that distinguish between Sefardim and Ashkenazim.
Ashkenazim can be religiously subdivided into Orthodox, Conservative, Reform,
Reconstructionist, etc., the Sefardim remain largely homogeneous and more
traditionally religious in what, for lack of a better term, is called Orthodox.
However it is an Orthodoxy that encompasses the entire spectrum of Sefardim,
with obviously some Sephardim more religious than others, and possibly
due to its Moorish exposure and free thinking Jewish philosophers such
as Maimonides it is usually, in practice if not in dogma, often less rigid
than one would expect.