An array is a contiguous block of memory of fixed size, whereas an ArrayList (though you should prefer List since .NET 2.0) wraps an array to provide dynamically-resizable storage.
The "difference" between them being that, as far as they're encapsulated, an ArrayList is resizable, an array isn't. As far as the implementation is concerned: because an ArrayList wraps (and reallocates) arrays it will require more slightly more memory than an array (as it has to know the current number of elements, as opposed to its capacity), furthermore an ArrayList also requires CPU time to reallocate and copy its internal array if it ever reaches its internal capacity.
However, instantiating an ArrayList is no more expensive than allocating an array. The only difference there being the handful of instructions needed to initialize the ArrayList's state. The difference is negligible and not worth worrying about.
You'll find that if you are reallocating an array by yourself as the means of creating a resizable collection then you're better off using ArrayList/List as it has been thoroughly tested.
