It looks like you are using the Scrum process template. The TFS site has published some very brief information about Product Backlog Items and Features and the idea behind creating a new work item type. http://www.visualstudio.com/en-us/news/2013-jun-3-vso.aspx
The difference between the two comes down to what granularity you want to work with your work items at:
- Product Backlog Items are composed of Tasks and have estimated effort.
- Features are composed of Product Backlog Items and have target dates.
I have not been able to find any official guidance on when to use Features vs Product Backlog Items but I have created my own guidance which I am basing this answer on… http://www.nsilverbullet.net/2013/06/04/features-help-us-plan-work-better-in-team-foundation-service-scrum-process/
Should you create a Feature or a Product Backlog Item?
- If you think/hope that the new work item that you are going to create will fit into a single sprint you should create a Product Backlog Item and then break it down into tasks for your sprint.
- If you think/know that the new work item won’t fit into a single sprint you should create a Feature and identify all the value-providing sprint sized items (Product Backlog Items) that the Feature can be broken down into and use these when planning future sprints.
[Update 2014-05-19]
Microsoft have published more information on how to use Features and the agile portfolio concept that has been implemented in TFS https://msdn.microsoft.com/en-us/library/dn306083(v=vs.120).aspx