To give you some context, there are a couple of different products either coming to the market, or already on it, that might make for really interesting future technologies for gaming, entertainment and perhaps even serious applications like medical or business use.
In the blue corner: VR
In the context of what we're talking about here, VR is the better promoted and understood product. Devices like Gear VR, Oculus Rift and HTC's Vive promise to offer us experiences that envelop us.
Put on a headset and you get a 360 degree view of a virtual world. Earth as you knew it is gone, instead you're looking at a totally different environment. You might watch a movie on the moon, or play a game where you're hacking a series of virtual computer nodes. It's even possible to stand on Mars and look around, using photos taken on the surface of the red planet.
In the red corner: AR
And here I'm talking about one product mainly: Microsoft's Hololens. Unlike VR, AR doesn't shut you off from the real world. Instead it overlays a virtual world onto it. Instantly this makes it ideal for more serious applications. Put on some AR glasses and you can drive a car with as much head-up information as you like. Qualcomm showed me a demo recently that allowed someone wearing AR glasses to look out of the side of the car to park without hitting the curb. Basically, you look through the door using cameras built in to the outside of the vehicle.
At E3 Microsoft also showed a demo where you could play Minecraft by looking at a table. The 3D world sprung up and manipulation was possible giving you a very tangible game experience. Also at E3 was a Halo 5 experience where you walk the corridors of a ship, can look out of a window at a launch bay and then get a briefing in AR. Check out the video:
VR: What makes it good?
Here's the thing with VR, it has the potential to be a much better gaming experience than AR does. Especially for most traditional types of game. It's not really accident that VR is mostly led by games companies. While Microsoft - and to some extent Google with Glass - go for AR. With VR you get proper immersion, whereas in AR you play only in a real environment.
AR: What makes it good?
Perhaps the smartest thing about AR is that it saves effort and processing power by not requiring you to generate a whole world. Rather than looking around in a virtual creation you instead look around reality, which doesn't need to be rendered by a computer of some kind. This could mean that AR glasses will have all their electronics self-contained rather than needing to be connected to a powerful computer, or expensive phone, in Gear VR's case.
Will there be one winner?
No. Don't think if this as a battle. Both of these technologies are amazing, and just starting out in life. AR, with Hololens feels like something you might wear more, assuming they can reduce the size of the hardware. You might one day run in AR glasses, drive your car or operate on a person with realtime information about their vital stats, and mapping of their important organs.
You could even wear AR glasses around your home, and program it to put a TV on wall X with certain dimensions while giving you cooking instructions for a killer romantic meal.
VR, on the other hand isn't well setup for moving outside one room. You can give it video feeds from cameras, but these are always going to be a poor version of your actual vision. After all, why make a 360 degree environment when one exists.
On the other hand though, AR won't ever give you the sense you're in another place. It's not a magical experience in quite the way that VR is. And VR isn't just for frivolous stuff either - you could still rehearse operations in VR - perhaps more usefully than a rehearsal with AR - and learn about how not to kill someone during a heart bypass op.
So, have I miseld you into thinking this is going to be a battle like HD DVD and Blu-ray, perhaps. Is the truth that this is a bit more like the LCD and plasma technology "battle" which you might argue was won by LCD, as plasma is no longer a display tech? Yes, that's a bit more like it. Both VR and AR will change your life, but you'll either select both to do different jobs, or the one you prefer using. There's no wrong answer here.
Liked this? Why not read: Oculus Rift VR: everything you need to know about the '$500' consumer version