Wow; in researching the answer to this question, I came across a lot of grammarese that read like gobblely gook. I will try to break it down in a manner that we can all understand. The use of “that” in a sentence is essential to the comprehension of the sentence, and is used to describe a noun in order to distinguish it from other possible interpretations. For example, “The salon that does my hair has raised their prices.” In this case the use of the word “that” is essential for describing the salon in question and distinguishes it from any other salon.
Which is used to begin a useful piece of information that gives additional information to the reader, but is not essential in conveying the basic information. For example, “Universe Today, the website which I get my space news from, just received a huge grant from the National Science Foundation. The phrase accompanying the “which” in this case is separated by commas. It expands upon the information, but is not an essential part of the sentence.
Clear as mud? Wise Geek provides a great description of the proper usage of these two words. Just get past the first paragraph because you need a Bachelor’s Degree in English Grammar to understand it.