Protector is right in saying that Night Terrors are 'the next step up' from nightmares; in fact, they are, at least physiologically, completely different.
The sleep process can be seen as a progression of states of consciousness, known as Awake, 1, 2, 3, 4, and REM sleep. The different stages are generally determined by the different brain wave patterns (measured by an EEG, or 'electro-encephalograph'). Nightmares, like all 'normal' dreams, occur during REM sleep, when, although the body lacks muscle tone, the level of brain activity is close to that of a conscious person.
Night terrors, on the other hand, occur during stage 3 or 4 sleep, the deepest sleep pattern. Brain waves in stages 3 and 4 (also known as 'slow wave' sleep) have much longer wavelengths than other stages and are known as Delta waves.
I became interested in night terrors though a research project for a pathology class, and I am trying to find imformation on a possible connection between night terror occurences and body temperature: terrors tend to be more common when the patient has a fever. According to one mother, placing her son's feet in cold water while he was having a night terror 'cured' him. I'd be interested to know if anyone has any information about a possible connection.