I'm confused. I figured they were both hosting solutions that Google sells or makes free. What's the distinction between both?

Thanks, Alex

Google Code is really a SourceForge-style hosting solution for free projects: you are able to host your code inside a provided Subversion or Mercurial repository and document assembling your shed inside a wiki. You can't run code on the internet Code, only upload your source code to see others. It's free.

Google Application Engine is really a general cloud application host. You are able to host internet sites designed in Python or Java, really running code on Google's servers, with cost proportional to usage (it's release with a amount).