What's the difference between these two Amazon Kindles?

The only difference is that one has 3G plus wi-fi, the other has only wi-fi. 3G is a cellular network and in this case, it connects to AT&T. If AT&T services an area but doesn't have 3G speed there, it will default to the slower EDGE network. A wi-fi only device can only connect to the internet via wi-fi and can't bounce from tower to tower like cellular. Many people have wi-fi networks in their homes in which case, Kindle can connect to the internet as long as it isn't an Enterprise network such as some businesses and schools use. It can connect at public hot-spots such as McDonalds, Starbucks and many libraries. So basically, the additional $50 cost of the one is because it adds the cellular connectivity but no e-book reader has to have connectivity. There's always the option to download e-books to the computer and copy them to the device via USB cable.

They both work anywhere. The comment about working globally is in eference to the 3G model only because AT&T provides cellular service in countries other than the US, but, just so you know, that doesn't mean it can connect literally everywhere on the planet. If connectivity via cellular outside AT&T's service areas is a concern, check the coverage map or contact AT&T about specific locations. Again, it can still connect via wi-fi and it doesn't have to connect at all if you have a computer with internet access. It does not need an internet connection to read books, only to download them.

They both have the same capacity, about 3,500 e-books. E-books are extremely small files. I've been using a reader for five years and have
over 600 e-books in Kindle format plus over 1,000 ePub e-books and if I
could put them all on the Kindle they wouldn't fill half its capacity.

The important thing to realize about the two different formats is that
Kindle can't read ePub files which is the file type that public libraries lend.

If that cover is actually a cover and not a case or sleeve, it will not
fit. Second generation was taller, wider and thicker. Many sleeves are
generic but covers are specific to a particular generation. Any covers
that attach with hinges must be made for that specific generation, as
even the hinges are in different places between the second and third
generations.

Check it out here.