What is the functional difference between imitation vanilla and true vanilla extract?

Yes, you can detect the difference. How much of a difference will depend on the quality of both the imitation and of the real thing.

That said, it's difficult if not impossible for me to pick out the differences in baked goods. So I keep both around, and use the (much cheaper) imitation stuff for baking, and the real stuff for sauces, icing, custards, milkshakes, etc.

Incidentally... In a pinch, bourbon makes a half-decent substitute for vanilla.

There's one more reason to sometimes use fake extract -- you can get it in clear. The real stuff is always a shade of brown.

Not being brown is important for when you're trying to get really vibrant colors on a cake. (you also have to switch to shortening as butter tints things yellow).

ps. For some reason, people don't like it when I respond to 'this icing is really good' with 'that's because it's whipped Crisco'.

As mentioned in a previous response, Cooks Illustrated did a test some years ago (2003, I think), where they concluded that the preferred vanilla in a taste test was some cheap artificial vanilla from a local drugstore's generic section or something. They have since done further tests (such as this one in 2009), and real vanilla sometimes edges out the cheap artificial competition (which here came in a close second), particularly for situations where the vanilla is uncooked and generally added in at the end (e.g., custards). Somebody over at Chowhound tried a similar experiment and agreed that artificial vanilla clearly won in baked goods. I don't have access to the full Cooks Illustrated article, but over here is another interesting claim -- that is, if you want to beat out all of the commercial extracts (both real and "fake"), just make you own at home.

Anyhow, there have been other similar tests over the years, but I find Kenji Lopez-Alt's test over at Serious Eats to be the most interesting. He tried blind tasting of vanilla sugar cookies, cooked vanilla ice cream, and simply stirred vanilla into a eggnog recipe. Like Cooks Illustrated, he found that in the cooked/baked applications, tasters couldn't tell the difference.

It was only in the (uncooked) eggnog application that the "real stuff" edged out the competition, but here Kenji went one step further and asked about the reason -- and it was just the "booziness" of the real stuff that people liked. By spiking the eggnog with a small amount of vodka to make up for the missing alcohol in the artificial vanilla, the "fake" stuff actually performed about as well as the real stuff. (Incidentally, the use of real vanilla beans actually suffered a similar problem and was declared as inferior to extract in some taste applications, since it didn't have the "booziness" element of extract.)

In a recent Cook's Illustrated blind taste test (not sure if it was double blind), testers unanimously preferred the flavor of imitation vanilla to some rather fancy 'real' vanilla extracts.

You might try a blind or double blind test yourself and see what you think.

Also, consider using real beans for things like custards and ice cream. You end up with little black flecks (vanilla seeds) but I find these add character and authenticity to the dish.

My rules:

Cold and/ or Creamy: Vanilla Bean Baking: Pure vanilla Extract.

However, I don't do all that much dessert cooking, so I can afford the real extract. I suppose if I was baking daily, I would reconsider the use of artificial extracts.

Smell both, you'll note the difference.

If you want less "boozy" extract use alcohol free vanilla but due to not being extracted by alcohol it cannot be classed as an extract but a flavor.

Alcohol free vanilla is mainly use for icing n cake decorating.

I keep imitation on hand just in case I run out of extract or powder but for baking its not bad...I use Vanillin sugar too

Both can be used in baking but some people may have allergies to vanillin

if ya like it use it xD