How do you differentiate between open source software and free software?

The canonical definition is that Free software means that anyone can modify it, in perpetuity no matter how many people branch off changes. The Open Source model that has come about, allows use of the source as a base for something proprietary where you don't have to release the source for further modifications or enhancements if you do not want to (but in practice lots do). From a philosophical standpoint the Free Software model is better for everyone long term... but current open source (like the BSD or Apache licensees) are more practical for getting software with an open codebase used, since companies are more reluctant to adopt software that means they might have to open up other aspects of what they are working on.