The two are often confused, and many businesses do both, but the work is different. A fabrication shop builds things from sheet, plate, pipe, and structural steel: it cuts, bends, rolls, and welds material into skids, frames, tanks, pressure vessels, and structures. A machine shop starts with a block, bar, or casting and removes metal, by turning, milling, drilling, and grinding, to produce parts to close tolerances.
Fabrication
The tools are plasma and laser cutters, press brakes, rolls, saws, and welding equipment. The skill is in reading drawings, controlling distortion, and producing welds that meet the code the job requires. Fabrication shops serve energy, construction, and industrial customers, and much of the equipment that goes to a well pad or a plant came out of one.
Machining
The tools are lathes, mills, and increasingly multi-axis CNC machines that run programmed cycles. The skill is in fixturing, tooling, programming, and inspection. Tolerances are measured in thousandths of an inch. Machine shops make components: shafts, housings, fittings, and the parts that fabricators and equipment builders assemble.
Where they meet
Many shops do both, because customers want a finished assembly rather than a bag of parts. A fabricator with a machining department can bore a fabricated frame to size; a machine shop with welding can build a fixture or repair a component. The combination is where a lot of small industrial businesses find their niche.
Related terms: job shop.