@VicentGaliana is exactly right. The difference between identifying a contact and creating a contact essentially boils down to whether or not you are able to "recognize" the contact.
What is contact identification and why is it important?
Think of a contact's session like short-term memory. The contact is here, and while the contact is here you remember who they are. You can personalize them based on their interactions, etc. Once that uses leaves the site and you no longer have the contact in session, how are you supposed to know who that user was?
Identifying a contact is essentially using data that is unique to the user to remember who (s)he is on return visits. For sites that have membership, the most common indentifier that I have seen is "username". As soon as the visitor logs into the site, the contact is identified by username, causing the information from their current visit to automatically merge with information from their previous visit and enabling you to personalize their experience based on their previous behavior, as well as their current behavior.
Imagine that you have membership on your website, and once a user logs in you then identify that user's contact via the following:
Every time the user returns to your site and logs in, the contact/tracking information from their current visit will combine with that of their previous visits via contact merging, enabling you to personalize the user's experience based on both their past and present contact history.
Contact creation with
Like Vicent said, you don't need to actually create contacts on your own, manually. Remember that
@Html.Sitecore().VisitorIdentification() call that everyone says you need to have in the
<head> of all of the pages that you want Sitecore to track on? IMHO this method should have been named
GetOrCreateVisitor, or something like that. When you think about this method, think "creation" instead of "identification".
VisitorIdentification method is basically responsible for creating the contact if this is the first visit, or else retrieving the contact (which may or may not have already been identified) from session.
More on Contact Identification and Merging
Have a look at this post (it's a bit lengthy), and scroll to the sub-section entitled "Understanding Contact Identification". There you will find a more detailed explanation of contact identification and merging.