One is for where the work piece is, and one for the size of tool ;-)

I'm sure the work piece offset doesn't need explained.

Whether tool offsets are any use, depends on if/how the controller implements them. For mills/routers, the two offsets are tool length compensation, and tool diameter/radius compensation.
Tool length is only really much use if you have some way to switch tools and reliably repeat the previous tool length I.e. something with a tool changer.

Diameter/radius compensation is more important, as it allows g-code to be used that doesn't rely on a certain size tool being used. In a nutshell, with diameter compensation, you can produce G-code that simply traces the outline of what you want to cut, the controller then applies a suitable offset based on the set tool diameter, and cuts on the inside or outside of the g-code line. If you want to use a different diameter tool, you just change the set tool diameter and the controller adjusts to suit the new offset.
Without the compensation, you need to produce G-code that already follows the offset cutting path based on the diameter of the tool you plan to be using. If you want to swap tool diameter, you would need to re-generate the G-code to have the correct offset for the new tool.

It can be argued what method is better. Using cutter compensation makes the g-code more versatile, but is reliant on the correct tool offsets and modes being set in the controller. Without compensation, eliminates the issue of having to set tool offsets and simplifies using the machine.
With any decent CAM, there's minimal difference in producing the G-code for either. Regenerating for a different tool diameter is usually a case of just setting the new diameter, and clicking a button, so not using compensation is hardly a major problem given how often you're likely to need to alter tool diameter.
The hardest part, is making sure the post processor is producing the correct codes and format for your controller.