Litigation means going to Court to resolve a dispute. Both parties will present their case in the Court, at which point the judge renders their verdict. On the other hand, arbitration is a private process where both parties agree that a third party (a neutral party) will yield a binding decision.
Arbitration also differs from litigation in several ways. The main difference is that arbitration is handled outside of the court system and can be much faster and less formal than litigation. However, arbitration can only be granted if it is provided within a contract agreed upon between the parties.