What is the difference between horizontal and vertical scaling?

Vertical scaling (scaling up) adds more resources (CPU, RAM) to existing servers - simpler but has hardware limits and single point of failure. Horizontal scaling (scaling out) adds more servers to distribute load - more complex but offers better fault tolerance, theoretically unlimited scale, and often more cost-effective. Most large-scale systems use horizontal scaling. Stateless applications are easier to scale horizontally; stateful ones require data partitioning or session management.