React offers two main ways to define components: Functional and Class-based, with a shift towards functional components with the introduction of React Hooks.
Functional components are plain JavaScript functions that return JSX and now can handle state and side effects through Hooks.
Class components are ES6 classes that extend from React.Component with more boilerplate and use of 'this', but still relevant for legacy projects and understanding React's lifecycle.
Functional components are preferred in modern React development due to their concise nature, ease of use, and full feature support via Hooks, offering cleaner and more efficient code.