Distinguish between a free trade area and a customs union?

A free trade area is where there are no tariffs between member nations.

A customs union goes a step farther and requires all members to have the same external tariff policy to goods coming in from outside the customs union.

So, if Countries A & B are in a customs union, they would both charge the same tariff on goods imported from Country C.

The reason for this is to prevent imports coming into the country with the lowest tariff and then being sent to another country in the union (without a tariff). The producer can send it directly to the end nation.