What is the difference between COD (Pending) and Paid (Processing) on a backend order?

The two buttons on the Create order screen set how payment is recorded:

• COD (Pending): the customer hasn't paid yet. The order starts as Pending with Cash on Delivery as the method. Use this for phone orders paid on delivery.
• Paid (Processing): the customer has already paid you, for example in cash at the counter or by bank transfer. The order starts at Processing and the payment is recorded as paid offline, not as COD.

You can still update the order status later from the order page.