The main difference between iterative and an incremental life cycle is that an iterative process makes progress through continuous refinement while an incremental process makes progress through small increments. For example, in a software project, an iterative approach would be to build the overall solution/product and then refine some of the areas that require improvement. Instead, using an incremental approach involves  building and releasing one feature at a time depending on priorities defined by the customer.

Outside of software development, the most common example used is that of an artist painting a picture.

If the picture was painted iteratively, but not incrementally, the artist might start with a sketch of the finished image (a prototype). Then the artist would iteratively add paint to the drawing over time. The artist would revisit the picture, changing it until he was happy with the finished image.

Now, consider painting the same picture but in a purely incremental, but not iterative way. The artist would first perfect one part of the picture before starting on any other part. Once he was happy with one section, he would only then start on the next, and so on. The artist perfects each element of the painting before the next one begins.