As if the language of real estate weren't confusing enough, the wave of bad lending practices and loan defaults of recent years have added more terms that have subtle but important shades of difference.  When you prepare to speak with an agent about buying or selling, make sure you understand the lingo.
First, realize that the word "foreclosure" does not describe a property, but the legal process by which a homeowner loses their interest and the bank or lender assumes ownership.  It's a legal term, not a property description.
If you're buying, you go to tour "foreclosures," per se.  You're probably going to look at "Real Estate Owned" listings, or REOs.  These are properties that the lender has taken back after the foreclosure process is complete.  You may see these advertised as "bank owned."
Then there's another type of listing described as a "short sale."  This may qualify as a "distressed" property, but it is not yet in the hands of the bank or lender.  The homeowners and the lender have reached an agreement to sell the property for less than the owners owe on their mortgage.
The short sale is an attempt at compromise between the two parties, keeping the sellers out of foreclosure and credit history ruin, and keeping the lender out of the costly process of foreclosure and expensive business of property management.