Here's a quick summary from Old Hack, in another thread:

http://www.absolutewrite.com/forums/...3&postcount=41

-----------
"Editing is done first, and it looks for the big stuff: plot holes, characterisation, dialogue, etc. Any mistakes which are spotted will get cleared up here too, but they're not the main focus. ...

Then comes copy editing, where littler mistakes are looked for: punctuation errors, typos, grammar problems, continuity issues, and so on.

Then the book moves to proof stage: page proofs are produced, and the proof reader checks them to look for any more problems."