I'll start with a cynical layman's view and let the pros fine-tune it:
1) As you undoubtedly know, the GFCI detects any difference between the current going out the hot wire and that returning via the neutral. If that difference is greater than .006A or so, for .025 seconds, the breaker trips.
2) The AFCI somehow (via FM?), most of the time, maybe, detects an arcing situation in the circuit downstream, whether or not (sometimes) an arc actually exists. Since arcing leads to fire, the NFPA has decided that detecting an arc, and opening the circuit is a Good Thing, and have mandated (2005NEC 210.12) that they be used to protect outlets in dwelling unit bedrooms, and in some plug-in air conditioners (440.65). Others have commented that the 2008 Code expands the mandates. AFCIs are outrageously expensive, and (as implied above) kind of flaky. As time goes on, they will undoubtedly become better and cheaper.
While it's theoretically possible to combine both GFCI and AFCI protection on one circuit, I don't know of any devices out there (yet) that do so.
Mike Holt's forum would be a good place to get the up-to-date and high-quality info on these things.