web user control where it predefined attribute functionality
where it resides in control library

web custom control: where it is defined by user itself and 
store in a custom library

Web User Controls:
1) Easy to Create
2) Limited support for consumers who use visual design tool
3) A seperate copy of the control is required in each 
application.
4)Cannot be added to toolbox in Visual Studio.
5) Good for Static Layout
Web Custom Controls:
1) Harder to Create
2) Full support for consumers
3) Only a single copy of the control is required in the GAC
4)Can be added
5) Good for Dynamic Layout

Plz refer the following link.It is very useful to know the 
difference b/w User control and Custom control and also how 
to create these controls.

http://support.microsoft.com/kb/893667

Kamal..........

Web User Control inherits .NET class i.e
System.web.UI.UserControl

whereas web custom control does not do so.

What are the basic differences between user controls and custom controls?
Now that you have a basic idea of what user controls and custom controls are and how to create them, let's take a quick look at the differences between the two.
Factors	User control	Custom control
Deployment	Designed for single-application scenarios

Deployed in the source form (.ascx) along with the source code of the application

If the same control needs to be used in more than one application, it introduces redundancy and maintenance problems	Designed so that it can be used by more than one application

Deployed either in the application's Bin directory or in the global assembly cache

Distributed easily and without problems associated with redundancy and maintenance
Creation	Creation is similar to the way Web Forms pages are created; well-suited for rapid application development (RAD)	Writing involves lots of code because there is no designer support
Content	A much better choice when you need static content within a fixed layout, for example, when you make headers and footers	More suited for when an application requires dynamic content to be displayed; can be reused across an application, for example, for a data bound table control with dynamic rows
Design	Writing doesn't require much application designing because they are authored at design time and mostly contain static data	Writing from scratch requires a good understanding of the control's life cycle and the order in which events execute, which is normally taken care of in user controls