Engraving would be where the entire letter is etched / engraved and the outline is simply where it engraves the outline of the letter.
The difference would be that regular engraving is a sold fill of the object and outline engraving is just the border. Both can be very effective, however regular engraving takes far longer. Regular engraving is done by having the laser carriage go back and forth (like a printer head) rastering / burning away material, while the outline is basically cutting into the material following the outline.