Stain penetrates the wood to add colour while preserving the natural grain, enhancing the wood's appearance. It doesn't provide much protection, so it often requires a topcoat of varnish or another finish. Varnish, on the other hand, sits on the wood's surface, creating a protective, often glossy, layer that shields the wood from moisture, scratches, and UV rays. Both can be used together to achieve a coloured wood finish.