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What is the difference between presentation and demonstration?

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In the context of my work at a software company, a presentation would include powerpoint slides with lists or screen shots of software functionality. A demonstration would include using the software to show, or demonstrate the functionality or how to complete a task.

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Absolutely agree (speaking also from a software/technical background). The interactivity involved in a demo has resulted in a fairly common turn of phrase "if the demo gods are with us" to indicate that a demo can (and often does!) go wrong. –  Loquacity Jul 3 '11 at 0:26
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For one thing, a demonstration could involve hundreds of thousands of people marching through the streets, some of them maybe throwing petrol bombs.

A presentation rarely involves more than a handful of 'presenters', and usually it's just one person standing up in front of an audience and talking.

Without more context it's hard to be more specific. In some cases the words are interchangeable.

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Assuming that by "demonstration" you mean somebody showing something to others rather than angry mobs in the streets:

A demonstration is a type of presentation. A presentation is any situation where you present some material to others. The typical presentation is a lecture with visual aids like slides. A demonstration is where you actually show something.

If the bulk of the time will be taken with showing the thing being demonstrated, you usually call it a demonstration (or "demo") even if there are also some accompanying slides. If most of the time will be spent with slides and talking and a demonstration is only a small part of it, it's better to call it a presentation (or a presentation that includes a demo) to set people's expectations correctly.

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Demonstration is when someone is showing something to someone on how it works.

Presentation is when someone is presenting something to a group of person either by charts diagram, slides etc.

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