Audience targeting displays your website to people from well-known established audiences that are highly interested into certain content/product/offer/etc… based on their past and current searching and browsing.
Keywords targeting displays your website to people who are right at the moment searching for or looking at certain content/product/offer/etc…
Combination of these targeting options have the best impact.
Example:
Product: Makeup
Affinity Audience: Beauty
Keywords: “makeup”, “beauty”
Your Final Visitor: Emily, who is regularly searching for and reading articles about tips for beauty and is searching to buy the right makeup at the moment.