Transition is installing Exchange 2007 in same AD forest and Exchange organization, keeping both version of Exchange in coexitance for sometime (this is optional), moving all data to Exchange 2007 and uninstall Exchange 2003.
Migration is creating new AD Forest, installing Exchange 2007 in new forests and move all Exchange data across the forest and decommission old AD and Exchange 2003.
Further details on which versions are supported and limitation on transition and migration can be found in below article...
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