This post covers some basic definitions of the typical types/stages of editing. Keep in mind that these names and distinctions won't be universal. Make sure to always read the definitions being used by a particular editor, agent, or publishing house to avoid any confusion. But these basic definitions should help you understand the general stages and order of edits, even if they don't match up exactly with the terms the people around you are using.
This type of editing is focused on the big picture. It often is done in more of a critique style, with comments or editorial letters rather then in-text changes. This type of editing is the best place to nail down your plotline, theme, character development, pacing, genre, and age range.
This type of editing is focused on individual lines of text and how they contribute to the larger book. It is usually done with a lot of comments and in-text changes. Substantive edits are about making the story cohesive and fixing things that disrupt the reading experience or are unclear to readers. At this level of editing, it is super important to have an editor who can match your voice and style while still cleaning up potential issues. They also need to be able to make recommendations that are right for your genre and age range.
This type of editing is what most people think of first. Copy editing is focused on applying grammatical rules to the individual words and sentences of the book in order to make things easy for your readers. A good copyeditor should be able to preserve your preferred level of formality while still removing issues that will confuse or frustrate readers. They should also be familiar with the appropriate style guide. In fiction that generally would be The Chicago Manual of Style. Publishing houses also have their own house style that their copyeditors will be following.
When working with a copyeditor, you can save a lot of time and potential confusion by providing a list of any preferred spellings of names or specialized terms that you would like them to spell or capitalize in a particular way. This can be especially important in books with a lot of made-up terms.
Proofreading is the final stage of editing. It is done on files that have already been typeset and formatted. Proofreaders are trained to catch the remaining typos, as well as formatting errors that occurred during layout. Because layout and formatting are often done in specialized programs, proofreaders often catch errors, but can't make the changes themselves. Edits and final corrections are frequently applied to the text by a typesetter. This extra step makes changes at this stage slow and messy, so its best to catch as many errors during copy editing as possible.
While you are improving your craft or preparing a manuscript for new eyes, you may do some editing out of this order. But when you are paying for edits or using beta readers, it's best to move from the large picture to the small. There is no reason to worry about the spelling on a chapter you may delete, or to polish up the emotions in a scene that creates a huge plot hole. On the otherhand, if you go back and change larger tweaks after copy editing has finished, you may create new issues that won't be caught before publication. This is why agents, editors, and publishing houses will always recommend edits in this order, though they may shift the exact names and boundaries.
Knowing these stages of editing will help you organize your revisions, ask the right questions of your beta readers, hire the right kind of editor, and communicate effectively with industry professionals.
About my coauthor:
Elestrei Engrei was a huge help at providing the author perspective for this post.