The distinction is the source of nearly every cash-account restriction. Regulators allow you to reinvest unsettled proceeds once, but selling the new position before the original settles means you paid for it with money that did not exist.
In a margin-account the issue disappears, because the broker simply lends against the pending proceeds.
Example: on Monday you sell $8,000 of stock; settlement is Tuesday under t-plus-one. On Monday you buy $8,000 of a different stock with those unsettled proceeds — permitted. Selling it Monday afternoon is a good-faith-violation. Waiting until Tuesday is fine.
Related: cash-account, good-faith-violation, free-riding, settlement-cycle