Market: Buy (or sell) at the best average market price.
Limit: Buy (or sell) at a fixed price (or better).
Image: Simple order form showing the Market/Limit toggle button
The advantage of limit orders over market orders is that they can ensure a better average fill price, since the bids or asks used to fill the order will be at the limit price. Additionally, if the market moves in your favour your limit order can fill at a price better than your limit price (i.e., your limit buy order fills at an average price lower than your limit price or your limit sell order fills at an average price higher than your limit price).
The disadvantage of limit orders is that there's no guarantee the order will completely fill (or fill at all) - it may not be the case that adequate bids or asks to fill the order will appear on the market.
Examples: If the lowest current ask for XBT/USD is $96, but you think you can get your buy order filled a bit lower, you might put in a limit buy order at $94. You can also use market and limit orders to create short positions. For example, if the highest current bid for XBT/USD is $95, and you want to open a short position at $110, this can be done by placing a limit sell order at $110. This order will start to fill at $110 (or better) once bids at $110 (or higher) appear in the order book. For any short position, you are borrowing in order to open the position, so leverage must be used.
Image: creating a limit buy order with a price of 94.00 USD on the XBT/USD market
Want to know what price to set your limit orders at? Click here for some recommendations.