a ref parameter must first be initialized before being 
passed from the calling function to the called function.


but a out parameter need not be initialized, we can pass it 
directly

normally while we are passing values to other methods it 
will pass copy of the values.But we use ref or out 
parameter it pass reference of values.

When we pass a parameter as ref to a method, the method 
refers to the same variable and changes made will affect 
the actual variable. even the variable passed as out 
parameter is same as ref parameter, but implementation in 
c# is different, 
Arguement passed as ref parameter must be initialized 
before it is passed to the method. But in case of out 
parameter it is not necessary. But after a call to a method 
as out parameter it is necessary to initialize.
When to use out and ref parameter, out parameter is used 
when we want to return more than one value from a method.

Ref parameter can be used as both input and o/p parameter
out parameter can be used as only output parameter

The main difference between them is ref parameter act as 
input/output  whereas out parameter is simply act as output.

Let us understand with an example:

Out parameters "out" parameters are output only parameters 
meaning they can only passback a value from a function.We 
create a "out" parameter by preceding the parameter data 
type with the out modifier. When ever a "out" parameter is 
passed only an unassigned reference is passed to the 
function. 

using System;
class Test
{
 static void out_test(out int x)
 {
  x=100;
 }
 static void Main()
 {
  int Myvalue=5;
  MyMethod(Myvalue);
  Console.WriteLine(out Myvalue);             
 }
}

Output of the above program would be 100 since the value of 
the "out" parameter is passed back to the calling part. 
Note 
The modifier "out" should precede the parameter being 
passed even in the calling part. "out" parameters cannot be 
used within the function before assigning a value to it. A 
value should be assigned to the "out" parameter before the 
method returns. 

Ref parameters "ref" parameters are input/output parameters 
meaning they can be used for passing a value to a function 
as well as to get back a value from a function.We create 
a "ref" parameter by preceding the parameter data type with 
the ref modifier. When ever a "ref" parameter is passed a 
reference is passed to the function. 

using System;
class Test
{
 static void Mymethod(ref int x)
 {
  x=x+ 100;
 }
 static void Main()
 {
  int Myvalue=5;
  MyMethod(Myvalue);
  Console.WriteLine(ref Myvalue);              
 }
}

Output of the above program would be 105 since the "ref" 
parameter acts as both input and output. 
Note 

The modifier "ref" should precede the parameter being 
passed even in the calling part. "ref" parameters should be 
assigned a value before using it to call a method.

out -doesnot keep initial value or assigned value.
ref-does
void f1(out int t){
t+=100 //give error becs t has no value  --true for ref
t=100 //possible
}

A reference parameter contain only reference of variable 
instead of value. In reference type parameter if changes 
occurs in variable than it affect the original value. But 
in out parameter it send only a copy of variable instead of 
reference therefore if u change in variable no changes 
occur in original value.
For example:- 
    class Program
    {       
        public void refparameter(ref int a)
        {           
            a += 5;
        }
        public void outparameter(out int p)
        {          
            p = 20;
        }
        static void Main(string[] args)
        {
            Program p = new Program();
            int b,c;
            Console.Write("Enter a Number:");
            b = Int32.Parse(Console.ReadLine());
            p.refparameter(ref b);
//After the calling of refparameter it change the value of b
            Console.WriteLine("After calling refparameter 
method value of B is:{0}",b);            
            p.outparameter(out c);
            Console.WriteLine("After calling the 
outparameter method value of C is:{0}",c);            
            Console.ReadLine();
        }
    }

out is used only to get output from a function.
it means that we cannot give any input using an out 
parameter. Whatever value we assign to an out parameter 
before calling to a function will be worthless, we need to 
assign a value in the called function to our out parameter
before its first usage and if no usage we need to assign a 
value before control leave the function.(out can be passed 
to function while uninitialized)

ref parameter is used for both input and output. The only 
thing is we need to assign a value before its first usage. 
ref parameter must be initialized before passing to a 
function.

In short ,

ref parameters needs to be initialized and can be used as 
input as well as for output where as the out parameters 
needs not to be initialized as there will not be any use 
even if u initialize and can only be used for the the ouput 
whose value to passed into the function......

for those who dont like too much reading...... it may help