Item
An item is just a record with fields you like. Each item has ID, Title and many other fields. You can add Date, Choice, Calculated, User and many more different fields. A field is just a column you see when viewing items.
List items can have attachments. You can attach many items/documents to a single list item.
Document
When you have a document library, your document is also a list item. It's just when you open it, you open the document. When you try to create a new one, again it opens word/excel for you. When you save - bam, you have a new entry in your document library. The document library also has these fields (they are called properties in case of a document library) which you can edit using the edit form. You cannot have attachments for a document - a document is just a document.
Advantage of using a document library is that you can edit these document properties inside the document. You can also have a template for a specific document type. The document library can also be browsed using windows explorer.