Configuration – Taking an existing system and modifying it for a particular use. No new software, database changes, or IT issues are involved. In an Excel Spreadsheet, configuration is not having to write equations beyond sums and subtotals.
Customization – Creating something new and unique based on a client’s current need. This new development may be a one-off solution or used for other future clients. In an Excel Spreadsheet, customization is creating an entire analysis from scratch (or nearly so).
Why does it matter? Configuration means you’ve been there, done that and can quickly get down to business. Customization means that the first part of the project is building the new stuff, the second part is debugging and making sure it works as intended and then finally getting down to business. Customization involves significantly more risk in both schedule, resource investment and possible issues with the result.