Here is what Wikipedia says....
"Mayday is an emergency procedure word used internationally as a distress signal in voice procedure radio communications."
and
"Pan-pan indicates an urgent situation of a lower order than a "grave and imminent threat requiring immediate assistance", such as a mechanical breakdown or a medical problem."
from
http://en.wikipedia.org/wiki/Mayday_(distress_signal)
so, basically, as beechsundowner said, one is urgency, the other is an emergency.