Thinning Out Versus Heading Back
(original tree image modified from Yard and Garden Brief, U. of Minnesota http://www.extension.umn.edu/projects/yardandgarden/ygbriefs/h409pruning.html)

Original Tree
The two basic types of pruning cuts are thinning out and heading back.  Each produces a distinctively different growth pattern.  In practice, a combination of the two methods are used.  That is, some limbs may be thinned out, while some of the remaining limbs may be headed back.  This allows one to prune a plant to achieve what ever shape and form is desired.
Thinning Out
(animated version)

Location of thinning out cuts
The cut is made at the point of origin of the branch.

Tree Pruned by thinning out
Entire branches are  removed back to their point of origin.

1 Year Later
The remaining branches grow more vigorously.  The tree develops a more open canopy with excellent light penetration to the interior branches and grasses and ground cover below.  On fruit trees, fruit production in the interior  would be promoted..
This is how one would prune a shade tree (oak, maple, ash) or some fruit trees (pear). 
Heading Back
(animated version)

Location of heading back cuts
The cut is made above the point of origin of the branch.

Tree Pruned by heading back
The terminal ends of the branches are removed.

1 Year Later
Because apical dominance is removed, several lateral buds just below the cut break dormancy and grow into branches.  Thus, many smaller branches develop and the tree develops a more dense canopy.  The more heavily the plant is headed back the more dense the canopy will become.  Avoid heading back so heavily that the tree is dehorned, pollarded or topped, which is never recommended..
This is how one would prune a small tree for a dense canopy effect (plantanus) or tree form shrubs (crape myrtle, ligustrum, holly)

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