Since Asus started the netbook craze a little over two years ago with their diminutive Eee PC, the netbook category has exploded. Nearly ever major PC brand (with the notable exception of Apple) has one, and prices have continued to drop as features and screen sizes have grown.

It’s no surprise that these little machines have become a hit: most models offer Windows XP, a 9″ or larger screen, built-in Wi-Fi, webcam, media card reader and a power-sipping processor that can last 5 hours or more on a a 3-cell battery. Higher-end models offer Solid State Drives, Bluetooth and multi-touch functionality. All this, starting at around $300.

There’s no doubt, netbooks offer superb value and portability for the money. So why then are a whopping 30% of all netbook purchases returned to the retailer where they were sold? The number comes from a recent Yankee Group report which concludes that consumers just aren’t well enough informed about the performance characteristics of netbooks before they buy.

Surprisingly, these consumers are not walking in to their local big box electronics retailer on a whim, and buying the first PC they see under $400. The same report claims that “consumers typically make a buying decision about a particular brand after hours, days or weeks of research—long before they ever walk into a store to purchase an item.”

If consumers are doing such due diligence yet are still unsatisfied with their purchase, it means that PC manufacturers, and all of us in the media, are doing a poor job educating buyers about netbooks before they even begin their research into which model is right for them.

The way to correct this apparent confusion is to start with some defintions that are meaningful to the average consumer. What is a netbook and what are the real differences between netbooks and their look-alike, but larger cousins, the laptops (or notebooks)?

Intel, the maker of the chips that are used in the vast majority of netbooks and notebooks, coined the term and has used it ever since to describe ultra-portable PCs that use their Atom processor. If we go with that as a starting point, any portable PC equipped with an Atom processor is a netbook, whereas any other CPU will make it a notebook.

But why does the processor matter? Aren’t size, weight, feature set etc. all important factors in identifying netbooks? Yes and no. While it’s true that most netbooks are small, with screen sizes never larger than 12″, and thin (often 1.5″ 1.5 cm thick) and light (some even as light as 2 lbs), it’s also true that they are no match for a notebook in the brains department.

And regardless how small and cheap a PC may be, if it can’t run all the software you could normally run (in the way that you normally run it) it’s not a notebook.

Well that sounds pretty clear: Atom processor = netbook, anything else = notebook. Right? Well…

It turns out that while Intel feels the netbook label is all about the CPU, other experts and some manufacturers disagree.

Sony just announced a machine they say is the world’s lightest laptop: the Vaio X.

And if the price is anything to go on, I’d have to agree. At $1300 it had better not be a netbook. But guess which processor is under the hood of this baby? Yup. An Intel Atom.

CNET, as recently as August of this year, argued that we should do away with the moniker altogether, claiming that “Netbooks are nothing more than smaller, cheaper notebooks,” and that “the distinction between the two can now be considered little more than marketing speak.” 

The same article doesn’t mention anything about the difference in processing power between the two categories, which is a shame, because it can really make a difference. How much depends on the CPU comparison, but Tom’s Hardware benchmarked the Atom against a fairly slow Celeron chip, and the Atom did not fare well. The Celeron was 35% faster, across the board. Remember the Vaio X? Still wondering about that $1300 price tag? Me too.

That sounds like a real knock against the Atom, but when you consider that the Atom consumes far less power than the Celeron, things begin to make sense, and it brings us back to the reason why netbooks are appealing despite their lack of processing power:  Their tiny size, and super-efficient internal components means that though they aren’t workhorses, they can go much longer without plugging in to a wall.

What consumers should remember is that while the line is blurring between netbooks and notebooks, there are some real differences in terms of performance. Want a super-portable PC that can give you quick and easy net access from a Wi-Fi hotspot so you can check your mail, surf the web, watch some videos and stay up-to-date on Facebook? Want to go up to a whole day without a recharge? Get a netbook.

But if you need a portable PC that can mutli-task, edit video, play 3D games, run Photoshop and do it all without grinding to a halt, you want a notebook.