What is the main difference between Create shapes or masks from text characters and why use one over the other, or when is one preferred over the other?
I am still fairly new to AE and am trying to better understand this, or can you point me to where i might look for the answer?
CS5 if that make a difference.
One creates masks, the other creates shape layers. There are properties that you can animate with shape layers that are not available to masks. There are also a few things you can do with masks that you can't with shape layers.
I'd suggest you take a look at the help files or do a Google Search on After Effects Shape Tutorials.