Canal phones tend to sit in the opening of your ear canal (e.g. Denon C700, certainly not cheap) whereas IEMs tend to sit deep inside your ear canal (e.g. Etymotic ER-4). I've also heard that IEMs can provide up to 23dB isolation whereas canal phones can only do around 15dB, although I'm sure these boundaries aren't set in stone for either type of 'phone.
Denon C700 (canal phone)
Etymotic ER-4 (IEM)
One more thing, IEMs tend to use armature drivers, so the body of the 'phone can be made a lot smaller and doesn't prevent it from being inserted deeply into your ear canal, whereas canal phones tend to use dynamic drivers. My Atrio M5s don't conform to this generalisation, but they get around not being able to fit the body of the 'phone into your ear canal by having longer tips.