Medical Term vs. Social Term
"Transsexual" is a medical term developed by psychologists to refer to individuals whose gender identity does not match their biological sex. For example, a person who identifies as a man but has XX chromosomes is a transsexual. "Transgendered" is a social term used to refer to a wide range of beliefs or behaviors relating to gender ambiguity. For example, a person may be socially and biologically male, but still engage in cross-dressing. This would make them transgendered.
Gender Confusion vs. Gender Ambiguity
Transsexual individuals suffer from gender identity disorder. They usually believe that they were born into the wrong body and hope to one day rectify this biological error. Transgendered individuals do not necessarily believe that they were born the wrong gender, but feel drawn toward activities that are gender neutral or atypical. For example, women that are rough, work in construction and don't take much interest in their appearance could be considered transgendered.
Cognitions vs. Behaviors
At the core of transsexualism is a cognitive perception of gender identity that contradicts biological sex. In contrast, transgendered refers to behaviors or activities that contradict gender roles. Thus, transgendered behaviors can indicate transsexual attitudes. However, transgendered behaviors do not need to be present from transsexualism to exist.
Sexuality vs. Gender Identity
It is worthwhile to note that while transgendered and transsexual individuals are often included in the gay and lesbian community, they are not necessarily homosexual. Transgenders and transsexuals can be attracted to members of the same sex, members of the opposite sex or both sexes. However, biologically-defined homosexuality is more common in transsexuals than in transgendered individuals.