The other day we received this question from a customer via Twitter:
We thought a few more of you might have the same questions so we decided we would take the opportunity to explain the differences between vCenter server and vCenter appliance and under what situation which one should be opted for, over the other.
The vCenter Server Appliance (vCSA) is a preconfigured Linux-based virtual machine optimized for running vCenter Server and associated services. Versions 5.0.1 and 5.1 of the vCSA uses PostgreSQL for the embedded database instead of IBM DB2, which was used in vCenter Server Appliance 5.0 The vCSA embedded postSQL DB supports 5 hosts / 50 virtual machines, with an Oracle DB the vCSA can support 1000 hosts and 10,000 vms. If you configure your vCSA to use an external instance of Single Sign On (SSO), the external SSO instance must be hosted on another vCenter Server Appliance; it cannot be hosted on a Windows machine.
--> Please see the rest on the blog : http://blogs.vmware.com/kb/2013/05/physical-or-appliance-upgrading-to-vcenter-server-5-1.html#.Ub7BBvm9naQ