Some people will say the premium AV is the only way to go. I, myself, would say that there are indeed some good free AV options out there. AVG Free Edition is a decent option, but my own personal recommendation would be Avast! Antivirus. It requires registration, but is 100% free for home, non-commercial use.
As for the difference, usually it involves extra features like email scanning, indentity protection, spam protection, and spoof-site protection. Most free AV programs will simply be that, an AV program, while most paid programs include the other features that you may or may not need.
Many seem to believe that having a big AV maker like Norten or McAfee means you'll get better virus definitions and more frequent updates, but this isn't entirely true. My Avast! software updates every 24 hours, and I've never been hit with a virus since installing it. My brother, running a complimentary one year subscription to Norten 360, got hit by two seperate trojan horse viruses that Norten did not catch until damage had been done. Both of our computers are near identical, and we often visit the same kind of sites, so I would actually trust Avast! as much or more than a paid AV.