RE: What is the difference between STEEM and STEEM Dollars?

About 3.5 days straight from the https://steem.io/steem-whitepaper.pdf :

Minimizing Fraudulent Feeds

SP holders elect individuals, called witnesses, to publish price feeds. The elected witnesses are presumably trusted by those who have a vested interest in the quality of the feed. By paying those who are elected, Steem creates market competition to earn the right to produce feeds. The more the feed producers are paid, the more they have to lose by publishing false information.

Given a set of trusted and elected feed producers, the actual price used for conversions can be derived as the median of the feeds. In this way, if any minority of individual feed producers produces outliers, they will have a minimal impact on the actual median, while risking their reputation as reliable feed producers.

Even if all feed producers are honest, it is possible for the majority of feed producers to be affected by events beyond their control. The Steem network is designed to tolerate short-term corruption of the median price feed while the community actively works to correct the issue. One example of an issue that may take some time to correct is short-term market manipulation. Market manipulation is difficult and expensive to maintain for long periods of time. Another example would be the failure of a centralized exchange or the corruption of the data published by the exchange.

Steem factors out short-term price fluctuations by using the median price over a period of three-and-a-half days. The median published feed is sampled every hour on the hour.

As long as the price feed corruption lasts for less than half the moving median time window it will have minimal impact on the conversion price. In the event that the feed does get corrupted, network participants will have an opportunity to vote out corrupt feed producers before the corrupted feed can affect the actual conversion price. Perhaps more importantly, it gives feed producers an opportunity to detect and correct issues before their feeds start affecting the price.

With a three-and-a-half day window, community members have approximately one-and-a-half days to respond to any issues that come up.

Mitigating Timing Attacks

Market participants have access to information faster than the blockchain’s three-and-a-half day moving median conversion price can react. This information could be used to the benefit of traders at the expense of the community. If there is a sudden increase in the value of STEEM, traders could request conversion of their SBD at the old, lower price, and then sell the STEEM they receive at the new, higher price with minimal risk.

Steem levels the playing field by requiring all conversion requests to be delayed for three-and-a-half days. This means that neither the traders nor the blockchain has any information advantage regarding the price at the time the conversion is executed.