Observers vs. Callbacks

One really important distinction to keep in mind, which is related to Milan Novota’s answer, is that callbacks on an ActiveRecord have the ability to cancel the action being called and all subsequent callbacks, where as observers do not.

class Model < ActiveRecord::Base
  before_update :disallow_bob

  def disallow_bob
  return false if model.name == "bob"
  end
end

class ModelObserver < ActiveRecord::Observer
  def before_update(model)
    return false if model.name == "mary"
  end
end

m = Model.create(:name => "whatever")

m.update_attributes(:name => "bob")
=> false -- name will still be "whatever" in database

m.update_attributes(:name => "mary")
=> true -- name will be "mary" in database

Observers may only observe, they may not intervene.