What is a Lager? A Lager is a beer that is fermented with a yeast strain that favors cool fermentation temperatures, and is stored for an extended period at cold temperatures to condition. This process is known as "lagering." It can take many weeks, or even months for a lager to be ready for consumption.
What is an Ale? Ale is a beer that is fermented with a yeast strain that favors warm fermentation temperatures, and is ready for consumption immediately. No additional storage or conditioning process is used. Ales can be ready for consumption in as little as a week.
In simplified terms, those are the two main differences: yeast and fermentation temperature. Ales ferment fast and hot. Lagers ferment slow and cool.
Lager-type yeast varieties enjoying a slower, cooler fermentation will produce very little in the way of yeast derived flavors. This makes for a clean, crisp character. During their period of cold conditioning, the settled yeast will absorb many of the off flavors that they may produce while fermenting. What you are left with is a beer with flavors and aromas derived almost solely from the malt and hops, and how they play with the water chemistry.
Ale-type yeast varieties enjoying a faster, warmer fermentation, will produce many yeast-derived flavors called esters and phenols. These by-products can give ales a fruity, spicy, or even solvent-like character. If you've ever noticed pepper, banana, or nail polish, in a beer, you're probably noticing the esters or phenols. Ales derive flavors and aromas from a combination of malt, hops, yeast, and water interactions.
A common misconception is that lagers are always light in color or low in alcohol. While this can sometimes be true, it definitely is not always the case. There are many lager styles that are deeper in color, even black and can be just as strong as any ale. Some popular examples are: Schwarzbier (black lager); Dopplebock (strong, malty, and deep colored); and Marzen (a rich, malty, amber colored beer).
Keep in mind there are exceptions to every rule, and these are not definitions set in stone, but rather general guidelines that are used to characterize these two sub-categories of beer. Several variations exist that combine processes, use yeast hybrids, etc. Some popular examples are: Kolsch - which uses an ale yeast and ferments at warm temperatures, followed by a short cold storage (lagering) period; California Common - which uses a lager yeast at warmer fermentation temperatures; or Altbier - which uses an ale yeast, ferments at slightly cooler temperatures, and is lagered.
Bonus Question: Does a Baltic Porter use Ale or Lager type yeast? Answer: Lager yeast is (usually) used in this style. Historically brewed with ale yeast, most breweries made the switch to using lager yeast as lighter lager styles became popular in Europe.
Adam Roberts is a Certified Cicerone.