The difference between “Damage Health” and “Ravage Health”

Magic resistance works against Fire, Shock, and Frost Damage, but it also reduces the effect of Absorb Health/Stamina/Magicka effects, magical "vulnerable to x" effects, etc.

You'll notice that you get much lower magnitudes of resist magic than you can get of resist elemental attributes for the same price. Resist Magic is the preferable choice, but you sacrifice magnitude for broad-spectrum defensive coverage.

I'm not sure if damage from standing in Oil Fires (the only non-magic source of elemental damage that comes to mind) is reduced by Resist Magic.

The two files simply store different things. The Skyrim.ini tends to be a little bit more core to the game - memory tweaks, the uGrids setting, etc - while the SkyrimPrefs.ini is more for things that are actually likely to changed by most users (not directly, but the launcher/in-game settings edit this file so this is basically the preferences store).

In practice, if you have a specific tweak you're trying to implement it will belong in one of the two files, put in the other file it will likely have no or an unexpected effect. Most of the tweaks that are safe and easy belong to SkyrimPrefs.ini.

Also, do note that there are plenty of new items you can add to the two files, so if you're trying to improve performance make sure that you go and look up some tweak guides that will give you these extra items to add. Tweaking what is already in the files won't cover everything.

Oh, and make sure you edit the ones in My Documents\My Games\Skyrim and not those in the game's install directories.