I searched a lot, but all are guessed answers. Help me to find the exact answer.
MSI is an installer file which installs your program on the executing system.
Setup.exe is an application (executable file) which has msi file(s) as its one of the resources. Executing Setup.exe will in turn execute msi (the installer) which writes your application to the system.
Edit (as suggested in comment): Setup executable files don't necessarily have an MSI resource internally
MSI is basically an installer from Microsoft that is built into windows. It associates components with features and contains installation control information. It is not necessary that this file contains actual user required files i.e the application programs which user expects. MSI can contain another setup.exe inside it which the MSI wraps, which actually contains the user required files.
Hope this clears you doubt.
An MSI is a Windows Installer database. Windows Installer (a service installed with Windows) uses this to install software on your system (i.e. copy files, set registry values, etc...).
A setup.exe may either be a bootstrapper or a non-msi installer. A non-msi installer will extract the installation resources from itself and manage their installation directly. A bootstrapper will contain an MSI instead of individual files. In this case, the setup.exe will call Windows Installer to install the MSI.
Some reasons you might want to use a setup.exe:
.msi files are windows installer files without the windows installer runtime, setup.exe can be any executable programm (probably one that installs stuff on your computer)