The article Registered Servers vs Central Management Servers lays out the differences in a straightforward manner.
- Connection data is stored locally in an XML file (passwords are encrypted) in the user path.
- Because it is a local file with encrypted data, Registered Servers are local and only work for the user that created them.
- Can be used with SQL Server Authentication or Windows Authentication.
- Can be used for the database engine, SSAS, SSIS, and SSRS.
Central Management Servers
- Connection data is stored in a central SQL Server (in the msdb database), and can be used by other users.
- Can be used with Windows Authentication only.
- Can be used for the database engine only.