There Are Real Differences
Because Pocket PC Phones are larger, they almost always feature more powerful hardware. PPC Phones generally have speedier processors, more onboard memory, larger displays, touchscreen and handwriting input, enhanced multimedia capabilities, more expansion options, and, in some cases, dedicated graphics processors. These differences are important, but arguably not as much so as the main difference between Pocket PC Phones and Windows Mobile Smartphones: software.
Windows Mobile for Pocket PC features built-in Office Mobile applications for viewing and editing documents (such as Word, Excel and PowerPoint), a PC-like tap-to-select interface and a more robust set of customization options. Windows Mobile for Smartphone lacks all of these features, but does offer e-mail, limited audio playback for music and audiobooks, limited video playback, text messaging, contact management, etc.
To get an idea of the differences in available third-party software, take a look at the Pocket PC Central Pocket PC Software Center and the Smartphone Software Center. While some applications are compiled to run on both device types, most will run on either one or the other.