I am sure there is an official definition that differentiates between graphic novels, illustrated books, and and comic books. I do not intend to refer to one of those definitions, instead I will provide my own based on recent reading.
Here in Washington, DC there is an excellent comic book store called Fantom Comics. They used to be located in Union Station, which made me happy because it was easy to get to, but then one day, they were not there any more. I was sad. I went home to look for information on-line and discovered they had moved to Dupont Circle, not as convenient, but when I visited the first time, I understood. The new store is probably four times as big as the old one giving them space to have a wide variety of stock like:
- a whole wall of current and new release comic books
- almost a whole wall of trade paper backs
- a big chunk of the same wall devoted to graphic novels
- a section of children's books, mainly graphic easy readers and novels
- and a variety of special interest displays that change
The place is amazing. I was already moving toward reading comic books more regularly. I am doing so even more now, but also exploring books that have been around for years that I am just discovering. In the area of comic books I am reading Saga by Brian K. Vaughn, The Runaways also by Brian K. Vaughn, and of course Neil Gaiman's newest, Sandman Overtures. This is just a short list but will serve to illustrate what I think a comic book is. Comic books are generally released episodically or serially, meaning the reader only gets a part of the story each month, or every few months in the case of Gaiman. The books do not stand alone, but usually make up one part of a larger story. They tend to have a large array of characters who each step forward to be the focus in one or more books. It seems to me, that like TV shows comic books last as long as there is demand and until then the writer does not necessarily have an ending in mind.
Graphic novels on the other hand have a full story arc just like a non-graphic novel. They are 
stories that are told textually and visually. One recent read is Mercury by Hope Larson that I enjoyed immensely. A little bit historical fiction, a little bit fantasy, and really unique art. I also picked up This One Summer by cousins Jillian Tamaki and Mariko Tamaki. The story revolves around friends who meet up each summer when their families visit Awago Beach. They grapple with the issues that appear in many YA books: Who am I? And where will be my place in the world? (Really versions of the same "search for self" theme.)
What these two types, comic books and graphic novels, have in common is that visually the story takes place in panels, or squares that move across the page in a pattern. This is also what makes them different from illustrated books in which the story is told in standard text format, supplemented by pictures on the same page or on a separate page. A gorgeous recent example is Neil Gaiman's The Sleeper and the Spindle, a version of the Sleeping Beauty story. The illustrations are all black and white with gold and simply amazing.
I've read lots of other graphic novels and comic books recently and with so many amazing choices these days I don't see myself giving up this genre any time soon.
