In order to know about what interpolate does you should first know what $parse does in AngularJs as i have explain it earlier and then you refer this to identify what the difference between them.
Interpolation markup with embedded expression will provide data binding to text nodes and attribute values.
Let me explain you with an example/s:
Consider the following code:
The above code can have short end form as well:
Key points: Just like $parse we use interpolate here except that the interpolate actually work with string and all the angular expression mixed up. The main thing about interpolate is that we can also use filter in it but not in case of $eval and $parse.