What is the difference between camouflage and advertising?

Good question because the two are often together in the same presentation.

An example of advertising that is camouflage is a political piece that may seem a straightforward attempt to persuade voters that a given candidate is better qualified but which implies a paranoia, a racism, or a demagoguery that plays of the fear of the viewer. In the last presidential election, McCain's ads often portrayed Obama as a dangerous dupe for terrorists while the Obama ads made McCain look senile and incompetent for contemporary needs.  Palin's living between two countries, Canada and Russia, had no relevance to her foreign policy credential--such thinking would make a Lichtensteiner a diplomatic maven.

Ads for products from beer, to toothpaste,  to cars often imply a sex appeal that has nothing to do with the product. A poor schlep who can't form a relationship with a woman is not going to do so no matter how often he brushes his teeth or what brand of beer he drinks.  Insurance companies show warm fuzzy ads stuffed full of 'family values,' which has nothing to do with their function which is to underwrite financial and personal losses--the ads camouflage the often impersonal approach which these companies must take in calculating risks to their own financial stability.

So advertising is informing and persuading about a person or product; it often contains camouflage which hides the hidden agenda or which implies a reality that has nothing to do with the person or product.  Such camouflaging can amount to propaganda.

Another form of camouflage is to make advertising look like it is really a news story or a documentary presentation.  The second link below gives an idea of how this can work.