What's the difference between parody and satire?

A parody is a composition that imitates the style of another composition, normally for comic effect and often by applying that style to an outlandish or inappropriate subject. Seth Grahame-Smith's Pride and Prejudice and Zombies is a perfect example of parody. Grahame-Smith took Jane Austen's text and introduced zombies into the storyline. Throughout the reworked novel, he maintained Austen's writing style, voice, and even much of the original storyline, creating a new work that is recognizable as being Jane Austen's but that definitely isn't.

A satire, on the other hand, is intended to do more than just entertain; it tries to improve humanity and its institutions. A satire is a literary work that tries to arouse the reader's disapproval of an object — a vice, an abuse, a faulty belief — by holding it up to ridicule. Satirists use euphemism, irony, exaggeration, and understatement to show, with a greater or lesser degree of levity, the follies of mankind and the paradoxes and idiocy that they can lead to.

Some great examples of satire include George Orwell's Animal Farm, which ridicules the Bolshevik Revolution in Russia; Voltaire's Candide, which attacks the philosophy of Optimism; and Jonathan Swift's Gulliver's Travels, which satirizes the "high-class" tastes, social expectations, and popular philosophies of his time.