A differential backup is a partial backup that copies a selected file to tape only if the archive bit for that file is turned on, indicating that it has changed since the last full backup. A differential backup leaves the archive bits unchanged on the files it copies.

Source: KRUTZ, Ronald L. & VINES, Russel D., The CISSP Prep Guide: Mastering the Ten Domains of Computer Security, John Wiley & Sons, 2001, Chapter 3: Telecommunications and Network Security (page 69).

Also see: http://e-articles.info/e/a/title/Backup-Types/

Backup software can use or ignore the archive bit in determining which files to back up, and can either turn the archive bit off or leave it unchanged when the backup is complete. How the archive bit is used and manipulated determines what type of backup is done, as follows

Full backup

A full backup, which Microsoft calls a normal backup, backs up every selected file, regardless of the status of the archive bit. When the backup completes, the backup software turns off the archive bit for every file that was backed up. Note that "full" is a misnomer because a full backup backs up only the files you have selected, which may be as little as one directory or even a single file, so in that sense Microsoft's terminology is actually more accurate. Given the choice, full backup is the method to use because all files are on one tape, which makes it much easier to retrieve files from tape when necessary. Relative to partial backups, full backups also increase redundancy because all files are on all tapes. That means that if one tape fails, you may still be able to retrieve a given file from another tape.

Differential backup

A differential backup is a partial backup that copies a selected file to tape only if the archive bit for that file is turned on, indicating that it has changed since the last full backup. A differential backup leaves the archive bits unchanged on the files it copies. Accordingly, any differential backup set contains all files that have changed since the last full backup. A differential backup set run soon after a full backup will contain relatively few files. One run soon before the next full backup is due will contain many files, including those contained on all previous differential backup sets since the last full backup. When you use differential backup, a complete backup set comprises only two tapes or tape sets: the tape that contains the last full backup and the tape that contains the most recent differential backup.

Incremental backup

An incremental backup is another form of partial backup. Like differential backups, Incremental Backups copy a selected file to tape only if the archive bit for that file is turned on. Unlike the differential backup, however, the incremental backup clears the archive bits for the files it backs up. An incremental backup set therefore contains only files that have changed since the last full backup or the last incremental backup. If you run an incremental backup daily, files changed on Monday are on the Monday tape, files changed on Tuesday are on the Tuesday tape, and so forth. When you use an incremental backup scheme, a complete backup set comprises the tape that contains the last full backup and all of the tapes that contain every incremental backup done since the last normal backup. The only advantages of incremental backups are that they minimize backup time and keep multiple versions of files that change frequently. The disadvantages are that backed-up files are scattered across multiple tapes, making it difficult to locate any particular file you need to restore, and that there is no redundancy. That is, each file is stored only on one tape.

Full copy backup

A full copy backup (which Microsoft calls a copy backup) is identical to a full backup except for the last step. The full backup finishes by turning off the archive bit on all files that have been backed up. The full copy backup instead leaves the archive bits unchanged. The full copy backup is useful only if you are using a combination of full backups and incremental or differential partial backups. The full copy backup allows you to make a duplicate "full" backup—e.g., for storage offsite, without altering the state of the hard drive you are backing up, which would destroy the integrity of the partial backup rotation.

Some Microsoft backup software provides a bizarre backup method Microsoft calls a daily copy backup. This method ignores the archive bit entirely and instead depends on the date- and timestamp of files to determine which files should be backed up. The problem is, it's quite possible for software to change a file without changing the date- and timestamp, or to change the date- and timestamp without changing the contents of the file. For this reason, we regard the daily copy backup as entirely unreliable and recommend you avoid using it.