Why it matters when you are writing
The distinction matters at submission time. If your department asks for a bibliography and you hand in a reference list, you have left out the reading that shaped your thinking but never got quoted. If a journal asks for a reference list and you hand in a bibliography, the copy editor will query every entry that no sentence points to. Read the instruction literally: the two words are not interchangeable, even though people use them loosely in conversation.
Formatting is where most marks are quietly lost. Entries are alphabetized by the first author’s surname, second and later lines are indented (a hanging indent), and the punctuation between elements is fixed by the style rather than by taste. None of this is intellectually interesting, which is exactly why it goes wrong late at night, and why building the list as you write beats assembling it at the end.
An annotated bibliography is a different assignment again. Each entry is followed by a short paragraph — usually 100 to 200 words — summarizing the source and stating what it contributes to your project. Supervisors set it early in a degree because it forces you to articulate why a source is in the pile before you have written anything around it.