The fab RuPaul dropped by The Real on Fox to promote the 8th season of "RuPaul's Drag Race" (beginning March 7 on LOGO), and along the way was asked to explain the difference between being a "drag queen" and being "transgender."
Said the wise and wonderful Ru:
“Well, drag is really making fun of identity.
“We are shape-shifters. We’re like, ‘OK, today, I’m this. Now, I’m a cowboy. Now, I’m this.’ That’s what drag is about.
“Transgender [people] take identity very, very seriously, in that their identity is who they are.
“But you know, I come from the school of you know, I’ll do whatever I want to do at any time and change and whatever.”
I've explained the difference to folks this way: drag is about performance; transgender is about how some folks view their gender identity.