The interlock is used to isolate a circuit from the rest of the electrical system in the event of a short circuit or a fault. This is mainly used for safety reasons and to avoid arcing. The interlock switch is more common in a household. The transfer switch is used in large buildings where there are several circuits that are operated from one switch.
Both have their pros and cons. Transfer switches ARE very good, and it's a must if you have a generator set up. But they are expensive and bigger than interlock.
An interlock is a good alternative, but it's not as good as a transfer switch. It's cheaper, but it's not as reliable.