I still don't think the differences have been made clear enough for the average noob. We need to start from ground zero with most of these chach monkeys.
MD stands for "medical doctor." Schools that grant MD degrees are called "allopathic" medical schools, whereas schools that grant the DO are called "osteopathic" medical schools.
Long story short, the osteopathic movement was started by a guy named A.T. Still who was an MD but felt that a lot of patient illness was due to structural problems with their bodies (i.e. a problem like your spine being out of alignment will affect other systems in your body, most notably your nervous system and circulatory system. Your nervous and circulatory systems are the ones that run all of the rest of your body. Disrupting innervation or blood flow to organs = bad). So he broke off and founded the osteopathic movement, stating that patients should be treated with more than just medication and surgery.
Consequently, DO and MD schools have the exact same basic science curricula, and do the exact same clinical rotations. The only difference in schooling is that DO's are taught "osteopathic manipulative treatment," or OMT, which involves adjusting patient's bodies (they do chiropractic adjustments plus a lot of other, more sophisticated hands-on treatment). MD's are not taught this material. OMT is most useful in primary care settings, and most DO schools have as part of their mission to produce primary care doctors who will work in under-served areas. Many DO's go on to specialize, so getting a DO degree does not mean you have to do primary care. There are plenty of DO surgeons, neonatologists, etc.
DO's can take the allopathic board exam, which allows them to secure allopathic residency training. MD's cannot sit for the DO boards, because they have not had the extra training in OMT. After boards and residency, both are attending physicians. The only differences are the letters on your degree, and whether or not you know OMT. There is no difference in pay between and MD and a DO in the same specialty, with the same seniority in the same hospital.
There are three last "considerations." All DO schools are private, and thus tend to have higher tuition. Some MD schools cost just as much, but some are considerably less expensive. DO schools are made out to be less competitive, and statistically they do accept applicants with lower average GPAs and MCAT scores.
Last is the notion of prestige. Some people feel that the DO is a lesser degree, and that DO's are somehow inferior to MD's. This stigma is fading very fast, and seems to be the most prevalent among premeds and med school rejects. A few MD students have told me that they wish they had given DO schools more consideration, especially after they learned about OMT. If you are smart and driven, becoming a DO will not hold you back in any way from becoming the doctor that you want to be.