What is a layer 3 switch?Differences between A layer 3 switch vs. a router
A Layer 3 switch, also a multilayer switch, combines the duties of a switch and a router. It acts as a switch because it connects devices that are on the same IP subnet or virtual LAN, and it performs at or near wire speed. But it also acts as a router because it has IP routing intelligence built in. Layer 3 switches are like a high-speed router without the WAN connectivity.
Differences between a layer 3 switch and a router
A “layer 3 switch” is marketingese for a device that combines both a switch and a router. “Layer 3 switching” is simply a newfangled term for “routing”.
More practically, a L3 switch is a router that has a lot of Ethernet interfaces. The routing functionality in a L3 switch is usually fairly limited compared to devices actually sold as a “router” (e.g. there might not be any support for BGP, or the L3 switch might not have any TCAM for wire-speed routing, or have no or limited ability to do policy-based routing), and such devices generally only support Ethernet; you won’t be able to terminate a SONET, OC-n, or T-1/T-3 connection directly into a L3 switch. For that, you need a router.
Devices sold as routers these days are likely to have support for other technologies often deployed at the edge: NAT, firewalling, tunneling, IPSec. These technologies are rarely implemented in L3 switches. But none of these technologies are inherent in being a “router”.
It used to be that a “router” was just a router; what’s happened is the edge router has become partially fused with the firewall, VPN concentrator, and other “edge” devices (and is still called a “router”), while the network core router has become partially fused with the network core switch (and is now called a “layer 3 switch”).