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Basically, a SAN does block I/O just like having a disk directly attached to a server. A NAS is really remote file system I/O where the file request is redirected over a network to a device (really a processing entity with its own file system) where the file I/O is actually performed. Here are two pictures that give you a general idea of how the I/O is done between block (SAN) and remote file I/O (NAS):
Deciding whether to use a SAN or NAS has many factors to consider so there's not a specific answer. In general if your application requires block I/O or there is a significant performance requirement, use a SAN. If it's file based I/O for the application or you need to share files and you want simple administration, use NAS.
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