Out-File has the behavior of overwriting the output path unless the -NoClobber and/or the -Append flag is set. Add-Content will append content if the output path already exists by default (if it can). Both will create the file if one doesn't already exist.
Another interesting difference is that Add-Content will create an ASCII encoded file by default and Out-File will create a little endian unicode encoded file by default.
> is an alias syntactic sugar for Out-File. It's Out-File with some pre-defined parameter settings.
Out-File has -Append (-NoClober is there to avoid overwriting) that will Add-Content. But this is not the same beast.
command | Add-Content will use .ToString() method on input. Out-File will use default formatting.
so:
ls | Add-Content test.txt
and
ls | Out-File test.txt
will give you totally different results.
And no, '>' is not alias, it's redirection operator (same as in other shells). And has very serious limitation... It will cut lines same way they are displayed. Out-File has -Width parameter that helps you avoid this. Also, with redirection operators you can't decide what encoding to use.
Here's a summary of what I've deduced, after a few months experience with PowerShell, and some scientific experimentation. I never found any of this in the documentation :(
[Update: Much of this now appears to be better documented.]
Read and write locking
While Out-File is running, another application can read the log file.
While Set-Content is running, other applications cannot read the log file. Thus never use Set-Content to log long running commands.
Encoding
Out-File saves in the Unicode (UTF-16LE) encoding by default (though this can be specified), whereas Set-Content defaults to Unicode0 (US-ASCII) in PowerShell 3+ (this may also be specified). In earlier PowerShell versions, Set-Content wrote content in the Unicode1 (ANSI) encoding.
Editor's note: PowerShell as of version 5.1 still defaults to the culture-specific Default ("ANSI") encoding, despite what the documentation claims. If ASCII were the default, non-ASCII characters such as ü would be converted to literal?, but that is not the case: 'ü' | Set-Content tmp.txt; (Get-Content tmp.txt) -eq '?' yields $False.
This means the defaults of two commands are incompatible, and mixing them will corrupt text, so always specify an encoding.
Formatting
As Bartek explained, Out-File saves the fancy formatting of the output, as seen in the terminal. So in a folder with two files, the command dir | out-file out.txt creates a file with 11 lines.
Whereas Set-Content saves a simpler representation. In that folder with two files, the command dir | set-content sc.txt creates a file with two lines. To emulate the output in the terminal:
PS > dir | ForEach-Object {$_.ToString()}
out.txt
sc.txt
I believe this formatting has a consequence for line breaks, but I can't describe it yet.
File creation
Set-Content doesn't reliably create an empty file when Out-File would:
In an empty folder, the command dir | out-file out.txt creates a file, while dir | set-content sc.txt does not.
Pipeline Variable
Set-Content takes the filename from the pipeline; allowing you to set a number of files' contents to some fixed value.
Out-File takes the data as from the pipeline; updating a single file's content.
Parameters
Set-Content includes the following additional parameters:
Exclude
Filter
Include
PassThru
Stream
UseTransaction
Out-File includes the following additional parameters:
Append
NoClobber
Width
For more information about what those parameters are, please refer to help; e.g. get-help out-file -parameter append.
Out-file -append or >> can actually mix two encodings in the same file. Even if the file is originally ASCII or ANSI, it will add Unicode by default to the bottom of it. Add-content will check the encoding and match it before appending. Btw, export-csv defaults to ASCII (no accents), and set-content/add-content to ANSI.